PRINCIPLES OF POLITICAL ECONOMY. 



PROFESSOR PERRY'S WORKS ON 
. POLITIGAL ECONOMY. 



I. INTRODUCTION TO POLITICAL ECONOMY. Fifth 
Edition. l2mo. 357 pp. Price, $1.50. 

2. PRINCIPLES OF POLITICAL ECONOMY. 8vo. 585 

pp. Price, $2.00. 

3. POLITICAL ECONOMY. Twenty-First Edition. Crown 

8vo. 600 pp. Price, $2.50. 



PRINCIPLES 



POLITICAL ECONOMY 



ARTHUE LATHAM PEREY, LL.D. 

Orrin Sage Professor op History and Political Economy in 
Williams College 



' No task is ill tvhere Hand and Brain 
And Skill and Strength have equal gain. 
And each shall each in honor hold, 
And simple manhood outweigh gold." 

Whittibr. 



NEW YOEK 

CHAELES SCEIBNEE'S SONS 

1891 



A 



] 



COPYRIGHT, 1890, 
BY ARTHUR LATHAM PERRY. 



7.,, / 



J'^it^t>i^ 



SEP 1 3 196^ 




©etiicatton. 



TO MY PERSONAL FRIEND OF LONG STANDING 

J. STERLING MORTON 

or NEBRASKA 

A FRIEND OF THE PEOPLE ALSO 

FOUNDER OP ARBOR DAY 



PREFACE. 



It is now exactly twenty-live years since was published my 
first book upon the large topics at present in hand. It was 
but as a bow drawn at a venture, and was very properly enti- 
tled "Elements of Political Economy." At that time I had 
been teaching for about a dozen years in this Institution the 
closely cognate subjects of History and Political Economy; 
cognate indeed, since Hermann Lotze, a distinguished German 
philosopher of our day, makes prominent among its only five 
most general phases, the "industrial" element in all human 
history; and since Goldwin Smith, an able English scholar, 
resolves the elements of human progress, and thus of universal 
history, into only three, namely, "the moral, the intellectual, 
and the productive." 

During these studious and observant years of teaching, I 
had slowly come to a settled conviction that I could say some- 
thing of my own and something of consequence about Political 
Economy, especially at two points ; and these two proved in 
the sequel to be more radical and transforming points than 
was even thought of at the first. Eor one thing, I had satis- 
fied myself, that the word "Wealth," as at once a strangely 
indefinite and grossly misleading term, was worse than useless 
in the nomenclature of the Science, and would have to be 
utterly dislodged from it, before a scientific content and de- 
fensible form could by any possibility be given to what had 
long been called in all the modern languages the "Science of 
Wealth." Accordingly, so far as has appeared in the long 
interval of time since 1865, these " Elements " were the very 
first attempt to undertake an orderly construction of Econom- 



vm PREFACE. 

ics from beginning to end without once using or having occa- 
sion to use the obnoxious word. A scientific substitute for 
it was of course required, which, with the help of Bastiat, him- 
self however still clinging to the technical term " Richesse," 
was discerned and appropriated in the word " Value " ; a good 
word indeed, that can be simply and perfectly defined in a 
scientific sense of its own ; and, what is more important still, 
that precisely covers in that sense all the three sorts of things 
which are ever bought and sold, the three only Valuables in 
short, namely, material Commodities, personal Services, com- 
mercial Credits. It is of course involved in this simple-looking 
but far-reaching change from " Wealth " to " Value," that Eco- 
nomics become at once and throughout a science of Persons 
buying and selling, and no longer as before a science of Things 
howsoever manipulated for and in their market. 

For another thing, before beginning to write out the first 
word of that book, I believed myself to have made sure, by 
repeated and multiform inductions, of this deepest truth in 
the whole Science, which was a little after embodied (I hope I 
may even say embalmed) in a phrase taking its proper place in 
the book itself, — A vuo-ket for Products is jn'odncts in Market. 
The fundamental thus tersely expressed may be formulated 
more at length in this way: One cannot Sell without at the 
same instant and in the same act Buying, nor Buy anything 
without simultaneously Selling something else ; because in 
Buying one pays for what he buys, which is Selling, and in 
Selling one must take pay for what is sold, which is Buying. 
As these universal actions among men are always voluntary, 
there must be also an universal motive leading up to them ; 
this motive on the part of both parties to each and every Sale 
can be no other than the mutual satisfaction derivable to both ; 
the inference, accordingly, is easy and invincible, that govern- 
mental restrictions on Sales, or prohibitions of them, must 
lessen the satisfactions and retard the progress of mankind. 

Organizing strictly all the matter of my book along these 
two lines of Personality and Reciprocity, notwithstanding 



PEEFACE. ix 

much in it that was crude and more that was redundant and 
something that was ill-reasoned and unsound, the book made 
on account of this original mode of treatment an immediate 
impression upon the public, particularly upon teachers and 
pupils ; new streaks of light could not but be cast from these 
new points of view, upon such topics especially as Land and 
Money and Foreign Trade ; and nothing is likely ever to rob 
the author of the satisfaction, which he is willing to share 
with the public, of having contributed something of impor- 
tance both in substance and in feature to the permanent up- 
building of that Science, which comes closer, it may be, to the 
homes and happiness and progress of the People, than any 
other science. And let it be said in passing, that there is 
one consideration well-fitted to stimulate and to reward each 
patient and competent scientific inquirer, no matter what that 
science may be in which he labors, namely, this : Any just 
generalization, made and fortified inductively, is put thereby 
beyond hazard of essential change for all time ; for this best 
of reasons, that God has constructed the World and Men on 
everlasting lines of Order. 

As successive editions of this first book were called for, and 
as its many defects were brought out into the light through 
teaching my own classes from it year after year, occasion was 
taken to revise it and amend it and in large parts to rewrite it 
again and again ; until, in 1883, and for the eighteenth edition, 
it was recast from bottom up for wholly new plates, and a 
riper title was ventured upon, — " Political Economy," — in- 
stead of the original more tentative "Elements." Since then 
have been weeded out the slight typographical and other minute 
errors, and the book stands now in its ultimate shape. 

My excellent publishers, who have always been keenly and 
wisely alive to my interests as an author, suggested several 
times after the success of the first book was reasonably assured, 
that a second and smaller one should be written out, with an 
especial eye to the needs of high schools and academies and 
colleges for a text-book within moderate limits, yet soundly 



X PRErACE. 

based and covering in full outline the whole subject. This is 
the origin of the "Introduction to Political Economy/' lirst 
published in 1877, twelve years after the other. Its success 
as a text-book and as a book of reading for young people has 
already justified, and will doubtless continue to justify in the 
future, the forethought of its promoters. It has found a place 
in many popular libraries, and in courses of prescribed reading. 
Twice it has been carefully corrected and somewhat enlarged, 
and is now in its final form. In the preface to the later edi- 
tions of the " Introduction " may be found the following sen- 
tence, which expresses a feeling not likely to undergo any 
change in the time to come : — "I have long been, and am 
still, ambitious that these books of mine may become the 
horn-books of my countrymen in the study of this fascinating 
Science." 

Why, then, should I have undertaken of my own motion a 
new and third book on Political Economy, and attempted to 
mark the completion of the third cycle of a dozen years each 
of teaching it, by offering to the public the present volume ? 
One reason is implied in the title, " Princijiles of Political 
Economy." There are three extended historical chapters in 
the earlier book, occupying more than one-quarter of its entire 
space, which were indeed novel, which cost me wide research 
and very great labor, and which have also proven useful and 
largely illustrative of almost every phase of Economics ; but 
I wanted to leave behind me one book of about the same size 
as that, devoted exclusively to the Principles of the Science, 
and using History only incidentally to illustrate in passing 
each topic as it came under review. For a college text-book 
as this is designed to become, and for a book of reading and 
reference for technical purposes, it seems better that all the 
space should be taken up by purely scientific discussion and 
illustration. This does not mean, however, that great pains 
have not been taken in every part to make this book also 
easily intelligible, and as readable and interesting as such 
careful discussions can be made. 



PEEFACE. XI 

A second reason is, to provide for myself a fresh text-book 
to teach from. My mind has become quite too thoroughly 
familiarized with the other, even down to the very words, by 
so long a course of instructi:ig from it, for the best results in 
the class-room. Accordingly, a new plan of construction has 
been adopted. Instead of the fourteen chapters there, there 
are but seven chapters here. Not a page nor a paragraph 
as such has been copied from either of the preceding books. 
Single sentences, and sometimes several of them together, 
when they exactly fitted the purposes of the new context, 
have been incorporated here and there, in what is through- 
out both in form and style a new book, neither an enlarge- 
ment nor an abridgment nor a recasting of any other. I 
anticipate great pleasure in the years immediately to come 
from the handling with my classes, who have always been of 
much assistance to me from the first in studying Political 
Economy, a fresh book written expressly for them and for 
others like-circumstanced; in which every principle is drawn 
from the facts of every-day life by way of induction, and also 
stands in vital touch with such facts (past or present) by way 
of illustration. 

The third and only other reason needful to be mentioned 
here is, that in recent years the legislation of my country in 
the matter of cheap Money and of artificial restrictions on 
Trade has run so directly counter to sound Economics in 
their very core, that I felt it a debt due to my countrymen 
to use once more the best and ripest results of my life-long 
studies, in the most cogent and persuasive way possible within 
strictly scientific limits, to help them see and act for them- 
selves in the way of escape from false counsels and impover- 
ishing statutes. Wantonly and enormously heavy lies the 
hand of the national Government upon the masses of the 
people at present. But the People are sovereign, and not 
their transient agents in the government ; and the signs 
are now cheering indeed, that they have not forgotten their 
native word of command, nor that government is instituted 



Xll PREFACE. 

for the sole benefit of the governed and governing people, 
nor that the greatest good of the greatest number is the true 
aim and guide of Legislation. I am grateful for the proofs 
that appear on every hand, that former labors in these direc- 
tions and under these motives have proven themselves to have 
been both opportune and effective ; and I am sanguine almost 
to certainty, that this reiterated effort undertaken for the sake 
of my fellow-citizens as a whole, will slowly bear abundant 
fruit also, as towards their liberty of action as individuals, 
and in their harmonious co-operation together as entire classes 
to the end of popular comforts and universal progress. 

A. L. PERRY. 

Williams College, 
November 25, 18fl0. 



TABLE OF CONTENTS. 



CHAPTER I. 

PAGE 

Value o . . . . 1 



CHAPTER II. 
Material Commodities 80 

CHAPTER HI. 
Personal Services 181 

CHAPTER IV. 
Commercial Credits 271 

CHAPTER V. 
Money 361 

CHAPTER VI. 
Foreign Trade 451 

CHAPTER VII. 
Taxation 540 

INDEX 587 

xiii 



PKINCIPLES OF POLITICAL ECONOMY. 



CHAPTER I. 

VALUE. 

The first question that confronts the beginner in this 
science, and the one also that controls the whole scope of 
his inquiries to the very end, is : What is the precise sub- 
ject of Political Economy ? Within what exact field do its 
investigations lie ? There is indeed a short and broad and 
full answer at hand to this fundamental and comprehensive 
question ; and yet it is every way better for all concerned 
to reach this answer by a route somewhat delayed and cir- 
cuitous, just as it is better in ascending a mountain summit 
for the sake of a strong and complete view to circle up 
leisurely on foot or on horseback, rather than to dash 
straight up to the top by a cog-wheel railway and take 
all of a sudden what might prove to be a less impressive 
or a more confusing view. 

The preliminary questions are : What sort of facts has 
Political Economy to deal with, to inquire into, to classify, 
to make a science of ? Are these facts easily separable in 
the mind and in reality from other kinds of facts perhaps 
liable to be confounded with them ? Are they facts of 
vast importance to the welfare of mankind ? And are the 
activities of men everywhere greatly and increasingly 
occupied with just those things, with which this science 
has exclusively to do ? Let us see if we cannot come little 

1 



2 PEESrCIPLES OF POLITICAL ECONOMY. 

by little by a route of our own to clear and true answers 
for all these questions. 

If one should take his stand for an hour upon London 
Bridge, perhaps the busiest bit of street in the world, and 
cast his eyes around intelligently to see what he can see, 
and begin also to classify the things coming under his 
vision, what might he report to himself and to others? 
Below the bridge in what is called the " Pool," which was 
dredged out for that very purpose by the ancient Romans, 
there lie at anchor or move coming and going many mer- 
chant-ships of all nations, carrying out and bringing in to 
an immense amount in the whole aggregate tangible articles 
of all kinds to and from the remote as well as the near 
nations of the earth. All this movement of visible goods, 
home and foreign, is in the interest and under the impulse 
of Buying and Selling. The foreign goods come in simply 
to buy, that is, to pay for, the domestic goods taken away ; 
and these latter go out in effect even if not in appearance 
to buy, that is, to pay for, the foreign goods coming in. 
At the same hour the bridge itself is covered with land- 
vehicles of every sort moving in both directions, loaded 
with salable articles of every description ; artisans of every 
name are coming and going ; merchants of many nation- 
alities step within the field of view ; and porters and ser- 
vants and errand-boys are running to and fro, all in some 
direct relation to the sale or purchase of those visible and 
tangible things called in Political Economy Commodities. 
Moreover, vast warehouses built in the sole interest of trade 
on both sides the river above and below the bridge, built to 
receive and to store for a time till their ultimate consumers 
are found, some of these thousand things bought and sold 
among men, lift their roofs towards heaven in plain sight. 
Doubtless some few persons, like our observer himself, may 
be on the spot for pleasure or instruction, but for the most 



VALUE. 3 

part, all that he can see, the persons, the things, the build- 
ings, even the bridge itself, are where they are in the inter- 
est of Sales of some sort, mostly of Commodities. What 
is thus true of a single point in London is true in a degree 
of every other part of London, of every part of Paris and 
of Berlin, and in its measure of every other city and village 
and hamlet in the whole world. Wherever there is a street 
there is some exchange of commodities upon it, and where- 
ever there is a market there are buyers and sellers of 
commodities. 

If the curiosity of our supposed observer be whetted by 
what he saw on London Bridge, and if the natural impulse 
to generalize from particulars be deepened in his mind, he 
may perhaps on his return to America take an opportunity 
to see what he can see and learn what he can learn within 
and around one of the mammoth cotton mills in Lowell or 
Fall River or Cohoes. Should he take his stand for this 
purpose at one of these points, say Lowell, he will be struck 
at once by some of the differences between what he saw on 
the bridge and what he now sees in the mill. He will 
indeed see as before some commodities brought in and 
carried out, such as the raw cotton and new machinery and 
the finished product ready for sale, but in general no other 
commodities than the cotton in its various stages of manu- 
facture, and those like the machinery and means of trans- 
portation directly connected with transforming the cotton 
into cloth and taking it to market. 

But he sees a host of persons both within and without 
the mill, all busy here and there, and all evidently bound 
to the establishment by a strong unseen tie of some sort ; 
he sees varying degrees of authority and subordination 
in these persons from the Treasurer, the apparent head 
of the manufactory, down to the teamsters in the yard and 
the common laborers within and without ; he will not find 



4 PRINCIPLES OF POLITICAL ECONOMY. 

the owners of the property present in any capacity, for 
they are scattered capitalists of Boston and elsewhere, who 
have combined through an act of incorporation their dis- 
tinct capitals into a " Company " for manufacturing cot- 
ton ; besides their Treasurer present, whose act is their act 
and whose contracts their contracts, he will see an Agent 
also who acts under the Treasurer and directly upon the 
Overseers and their assistants in the spinning and weaving 
and coloring and finishing rooms, and under these Opera- 
tives of every grade as skilled and unskilled ; and lastly 
he will observe, that the direct representatives of the own- 
ers and all other persons present from highest to lowest 
are conspiring with a will towards the common end of get- 
ting the cotton cloth all made and marketed. 

What is it that binds all these persons together? A lit- 
tle tarrying in the Treasurer's office will answer this ques- 
tion for our observer and for us. He will find it to be the 
second kind of Buying and Selling. At stated times the 
Treasurer pays the salary of the Agent, and his own. He 
pays the wages of the Overseers and the wages of all the 
Operatives and Laborers, — men and women and children. 
Here he finds a buying and selling on a great scale not of 
material commodities as before, but of jjersonal services of 
all the various kinds. Every man and woman and child 
connected with the factory and doing its Avork sells an 
intangible personal service to the " Company " and takes 
his pay therefor, which last is a simple buying on the part 
of the unseen employers. Here, then, in this mill is a sin- 
gle specimen of this buying and selling of personal ser- 
vices, which is going on to an immense extent and in every 
possible direction in each civilized country of the world, 
and everywhere to an immensely increased volume year by 
year. Clergymen and lawyers and physicians and teach- 
ers and legislators and judges and musicians and actors 



VALUE. 5 

and artisans of every name and laborers of every grade sell 
their intangible services to Society, and take their pay 
back at the market-rate. The aggregate value of all these 
services sold in every advanced country is probably greater 
than the aggregate value of the tangible commodities sold 
there. At any rate, both classes alike, commodities and 
services, are bought and sold under substantially the same 
economic principles. 

The inductive appetite in intelligent persons, that is to 
say, their desire to classify facts and to generalize from 
particulars, almost always grows by what it feeds on ; and 
our supposed observer will scarcely rest contented until he 
has taken up at least one more stand-point, from which to 
observe men's Buying and Selling. Suppose now he enter 
for this purpose on any business-day morning the New 
York Clearing-House. He will see about 125 persons 
present, nearly one half of these bank clerks sitting behind 
desks, and the other half standing before these desks or 
moving in cue from one to the next. The room is per- 
fectly still. Not a word is spoken. The Manager of the 
Clearing with his assistant sits or stands on a raised plat- 
form at one end of the room, and gives the signal to begin 
the Exchange. No commodities of any name or nature 
are witliin the field of view. The manager indeed and his 
assistant and two clerks of the establishment who sit near 
him are in receipt of salaries for their personal services, 
and all the other clerks present receive wages for their 
services from their respective banks, but the exchange 
about to commence is no sale of personal services any 
more than it is a sale of tangible commodities. It is how- 
ever a striking instance of the buying and selling of some 
valuables of the third and final class of valuable things. 

At a given signal from the manager the (say) 60 bank 
messengers, each standing in front of the desk of his own 



6 PRINCIPLES OF POLITICAL ECONOMY. 

bank and each having in hand before liim 59 small parcels 
of papers, the parcels arranged in the same definite order 
as the desks around the room, step forward to the next 
desk and deliver each his parcel to the clerk sitting behind 
it, and so on till the circuit of the room is made. It takes 
but ten minutes. Each parcel is made up of cheques or 
credit-claims, the property of the bank that brings it and 
the debts of the bank to which it is delivered. Accord- 
ingly each bank of the circle receives through its sitting 
clerk its own debits to all the rest of the banks, and deliv- 
ers to all through its standing messenger its own credits as 
off-set. In other words, each bank buys of the rest what 
it owes to each with what each owes to it. It is at bottom 
a mutual buying and selling of debts. There is of course 
a daily balance on one side or the other between every two 
of these banks, which must be settled in money, because 
it would never happen in practice that each should owe 
the other jjrecisely the same sum on any one day ; but 
substantially and almost exclusively the exchange at the 
Clearing-House is a simple trade in credit-claims. Each 
bank pays its debts by credits. A merchant is a dealer in 
commodities, a laborer is a dealer in services, and a banker 
is a dealer in credits. Each of the three is a buyer and 
seller alike, and the difference is only in the kind of valu- 
ables specially dealt in by each. In all cases alike, how- 
ever, there is no buying Avithout selling and no selling 
without buying ; because, Avhen one buys lie must always 
pay for what he buys and that is selling, and when one 
sells he must always take his pay for what he sells and 
that is buying. Tliis is just as true when one credit is 
bought or sold against a commodity or a service, and when 
two or more credits are bought and sold as aofainst each 
other, as it is when two commodities or two services are 
exchanged one for the other. 



VALUE. I 

But the Clearing-House is not by any means the only 
place where credits or debts (they are the same thing) are 
bought and sold. Every bank is such a place. Every 
broker's office is such a place. Every place is an estab- 
lishment of the same kind where commercial rights, that 
is, claims to be realized in future time and for which a 
consideration is paid, are offered for sale and sold. The 
amount of transactions in Credits in every commercial 
country undoubtedly surpasses the amount in Commodi- 
ties or that in Services. 

Now our supposed observer and classifier, having noted 
on London Bridge the sale of material commodities, and in 
the Lowell Mill the sale of personal services, and within 
the New York Clearing-House the sale of credit-claims, 
has seen in substance everything that ever was or ever 
will be exhibited in the world of trade. He may rest. 
There is no other class of salable things than these three. 
Keen eyes and minds skilled in induction have been busy 
for two millenniums and a half more or less to find another 
class of things bought and sold among men, and have not 
yet found it or any trace of it. This work has been per- 
fectly and scientifically done. The generalization is com- 
pleted for all time. 

The genus, then, with which Political Economy deals 
from beginning to end, has been discovered, can be de- 
scribed, and is easily and completely separable for its own 
purposes of science from all other kinds and classes and 
genera of things, namely, Salable things or (what means 
precisely the same) Valuable things or (what is exactly 
equivalent) Exchangeable things. In other words, the sole 
and single class of things, with which the Science of 
Political Economy has to do, is Valuables, whose origin 
and nature and extent and importance it is the purpose of 
the present chapter to unfold. We have fully seen already 



8 PRINCIPLES OF POLITICAL ECONOMY. 

that this Genus, Valuables, is sub-divided into three 
species, and three only, namely. Commodities, Services, 
Credits. A little table here may help at once the eye and 
the mind : — 

ECONOMICS. 

The Genus Valuables 

( Commodities 

The Species -< Services 

( Credits 

If only these three species of things are ever bought 
and sold, then it certainly follows that only six kinds of 
commercial exchanges are possible to be found in the 
world, namely these : — 

1. A commodity for a commodity. 

2. A commodity for a personal service. 

3. A commodity for a credit-claim. 

4. A personal service for another service. 

5. A personal service for a credit-claim. 

6. One credit-claim for another. 

Though the kinds of possible exchanges are thus very 
few, the exchanges themselves in one or other of these six 
forms and in all of them are innumerable on every busi- 
ness day in every civilized country of the globe. And 
this point is to be particularly noted, that while buying 
and selling in these forms has been going on everywhere 
since the dawn of authentic History, it has gone on all the 
while in ever-increasing volume, it is increasing now more 
rapidly and variously than ever, and moreover all signs 
foretell that it will play a larger and still larger part in 
the affairs of men and nations as this old world gains in 
age and unity. 

Damascus is one of the very oldest cities of the world, 
and its very name means a " seat of trade.'" We are told 



VALUE. 9 

in the Scriptures, that Abraham about 2000 years before 
Christ went up out of Egypt " very rich in cattle, in silver, 
and in gold," and the only possible way he could have 
acquired these possessions was by buying and selling. He 
afterwards purchased the cave and the field in Hebron for 
a family burial-place, and " weighed unto Ephron the silver 
which he had named in the audience of the sons of Heth, 
four hundred shekels of silver, current money with the 
merchant." We may notice here, that there were then 
"merchants" as a class, that silver by weight passed as 
"money" from hand to hand, and that in the lack of 
written deeds to land, as we have them, sales were " made 
sure " before the faces of living men, who would tell the 
truth and pass on the word. Abraham indeed seems to 
have given the pitch for the song of trade siing by his 
descendants, the Jews, from that day to this ; for Jacob, 
his grandson, was a skilled trafficker, not to say a secret 
trickster, in his bargains ; and wherever in the Old World 
or the New the Jews have been, there have been in fact 
and in fame busy buyers and sellers. 

But the Jews have had no special privileges in the 
realm of trade ; on the contrary, they have always been 
under special disabilities both legal and social. Even in 
England, the most liberal country in Europe, they were 
exiled for long periods, maltreated at all points of contact 
with other people, more or less put under the ban of the 
Common and the Statute law, often outrageously taxed on 
their goods and persons, and studiously kept out of the 
paths of highest public employment even down to a time 
within the memory of living men.^ Yet so natural is the 
impulse to trade, so universally diffused, so imperative 
also if progress is in any direction to be attained, that the 
English and all other peoples were as glad to borrow money, 
1 Green's Short History of the English People, p. 591. 



10 PRIKCIPLES OF POLITICAL ECONOMY. 

that is, buy the use of it, of the persecuted Jews, as the 
latter were to get money by buying and selling other 
things, and then to loan it, that is, sell the use of it, under 
the best securities (never very good) for its return with 
interest, that they could obtain. Happily, the mutual 
gains that always wait on the Exchanges even when their 
conditions are curtailed, of course attended the mutilated 
exchanges between Jews and Christians : otherwise, they 
would not continue to take place. 

Christianity, however, as the perfected Judaism, gradu- 
ally brought in the better conditions, the higher impulses, 
and the more certain rewards, of Trade, all which, we 
may be sure, were designed in the divine Plan of the 
world. What is called the Progress of Civilization has 
been marked and conditioned at every step by an exten- 
sion of the opportunities, a greater facility in the use of 
the means, a more eager searching for proper expedients, 
and a higher certainty in the securing of the returns, of 
mutual exchanges among men. There have been indeed, 
and there still are, vast obstacles lying across the pathway 
of this Progress in the unawakened desires and reluctant 
industry and short-sighted selfishness of individuals, as 
well as in the ignorant prejudices and mistaken legislation 
of nations ; but all the while Christianity has been indi- 
rectly tugging away at these obstacles, and Civilization has 
been able to rejoice over the partial or complete removal 
of some of them; while also Christianity directly works 
out in human character those chief qualities, on which the 
highest success of commercial intercourse among men will 
always depend, namely. Foresight, Diligence, Integrity, 
and mutual Trust ; so that, what we call Civilization is to 
a large extent only the result of a better development of 
these human qualities in domestic and foreign commerce. 

Contrary to a common conception in the premises, the 



VALUE. 11 

sacred books " of both Jews and Christians display no bias 
at all against buying and selling, but rather extol such 
action as praiseworthy, and also those qualities of mind 
and habits of life that lead up to it and tend too to in- 
crease its amount, and they constantly illustrate by means 
of language derived from traffic the higher truths and more 
spiritual life, which are the main object of these inspired 
writers. It is indeed true that the chosen people of God 
were forbidden to take Usury of each other, though they 
were permitted to take it freely of strangers, and that 
they were forbidden to buy horses and other products out 
of Egypt, for fear they would be religiously corrupted by 
such commercial intercourse Avith idolaters ; but there is 
nothing of this sort in the law of Moses that cannot be 
easily explained from the grand purpose to found an agri- 
cultural commonwealth for religious ends, in which com- 
monwealth no family could permanently alienate its land, 
and in which it was a great object to preserve the indepen- 
dence and equality of the tribes and families. . Through- 
out the Old Testament there is no word or precept that 
implies that trade in itself is not helpful and wholesome ; 
there were sharp and effective provisions for the recovery 
of debts ; there were any number of exhortations to dili- 
gence in business, such as, " In the morning sow thy seed, 
and at evening withhold not thy hand " ; King Solomon 
himself made a gigantic exchange in preparation for the 
temple with King Hiram of Tyre, by which the cedars of 
Lebanon were to be paid for by the grain and oil of the 
agricultural kingdom; chapter xxvii of the prophet Ezekiel 
is a graphic description of the commerce of the ancient 
world as it centered in the market of Tyre, a description 
carried out into detail both as to the nations that fre- 
quented that market and as to the products that were 
exchanged in it, — " silver, iron, tin, lead, persons of men, 



12 PRINCIPLES OF POLITICAL ECONOMY. 

vessels of brass, horses, horsemen, mules, horns of ivory, 
ehony-ivood, carbuncles, purple work, fine linen, corals, rubies, 
wheat, pastry, syrup, oil, balm, wine of Helbon, ivhite wool, 
thread, wrought iron, cassia, sweet reed, cloth, lambs, rams, 
goats, precious spices, precious stones, splendid apparel, man- 
tles of blue, embroidered work, chests of damask, and gold "; 
and chapter xxxi of Proverbs describes the model house- 
wife in terms like these, — 

" The heart of her husband trusteth in her, 
And he is in no want of gain. 
She seeketh ivool and flax, 
And worketh loilUngly with her hands. 
She is like the merchants' ships ; 
She bringeth her food from afar. 
She riseth tohile it is yet night, 
A Ad giveth food to her family. 
And a task to her maidens. 
She layeth a plan for a field and buyeth it; 
With the fruit of her hands she planteth a vineyard. 
She perceiveth how pleasant is her gain, 
And her lamp is not extinguished in the night. 
She putteth forth her hands to the distaff. 
And her hands take hold of the spindle. 
She maketh for herself coverlets ; 
Her clothing is of fine linen and purple. 
She maketh linen garments and selleth them, 
And delivereth girdles to the merchants." 

Still more explicit and instructive are the words and 
spirit of the New Testament. There cannot be the least 
doubt that the whole influence of Christianity is favorable 
to the freest commercial exchanges at home and abroad, 
because these depend largely on mutual confidence between 
man and man, of which confidence Christianity is the 
greatest promoter. It may be conceded at once that our 
Lord " overthrew the tables of the 7noney -changers and the 
seats of them that sold doves " within the sacred precincts 



VALUE. 13 

of the temple, but this, not because it is wrong to change 
money or sell doves, but because that was not the place 
for such merchandising ; so He himself explained his own 
action in the sequel ; provincial worshippers coming up to 
Jerusalem must needs have their coins changed into the 
money of the Capital, and must needs buy somewhere the 
animal victims for sacrifice ; but the whip of small cords 
had significance only as to the place, a'nd not at all as to 
the propriety, of such trading. 

One of our Lord's parables, the parable of the Talents, 
sets forth in several striking lights the privilege and duty 
and reward of diligent trading. " Then he that had re- 
ceived the five talents went and traded with the same, and 
made them other five talents^ And when this servant came 
to the reckoning, and brought as the result of his free and 
busy traffic ^'■five talents more" the prompt and hearty 
approval of his lord — " well done, thou good and faithful 
servant " — becomes the testimony of the New Testament 
to the merit and the profit and the benefit of a vigorous 
buying and selling. For this servant could not have been 
authoritatively pronounced good and faithful if the results 
of his action commended had been in any way prejudicial 
to others. The truth is, as we shall abundantly see by and 
by with the reasons of it, that any man who buys and sells 
under the free and natural conditions of trade, benefits the 
man he trades with just as much as he benefits himself. 
But the parable has a still stronger word in favor of 
exchanges. There was another servant also entrusted 
with capital by his lord at the same time, when the latter 
was about to travel "mto afar country." We are expressly 
told that distribution was made " to every man according to 
his several ability " and thus this servant was only entrusted 
with a single talent, the size of the capital given to him 
being in just proportion to the size of the man, — the 



14 PRINCIPLES OF POLITICAL ECONOMY. 

smallest share falling of course to the smallest man. But 
he had the same opportunity as the two others. The world 
was open to him. Capital was in demand, if not in those 
})arts then in some other, to which, like his lord, he might 
straightway take his j(nirney. But when his time of reck- 
oninof came, and he had nothino' to show for the use of his 
capital, he upbraided his lord as a hard man for expecting 
any increase, and brought out his bare talent wrapped in 
a napkin, saying, ^'- 1 was afraid, and I went and hid thy tal- 
ent in the earthy His wise lord at once denounced this 
servant as " wicked and slothfuW insisted that his money 
ought to have been '-''put to the exchangers,^' and said finally 
in a just anger " cast ye the unprofitable serva7it into outer 
darkness^ 

It is moreover in incidental passages of the Scriptures, 
in which the methods of business are commended to the 
searchers after higher things, that we see their high esti- 
mate of those methods and gains. " B^iy the truth, and sell 
it not; buy wisdom and tinder standing"' (Prov. xxiii, 23). 
'"'' Buying up for yourselves opportu7iities "" (Col. iv, 5). "/ 
counsel thee ta buy of me gold refined by fire, that thou may- 
est be rich ; and ivhite garments, that thou mayest be clothed ; 
and eye-salve to anoint thine eyes, that thou mayest see " 
(Rev. iii, 18).- " But rather let him labor, working with his 
hands at that ivhich is good, that he may have to give to him 
that is in need'' (Eph. iv, 28). " But if any one provideth 
not for his own, and especially for those of his own house, 
he hath denied the faith, and is ivorse than an unbeliever " 
(1 Tim. V, 8). 

Now, the universal test and proof of any truth is its 
harmony with some other truths. Does an alleged truth 
fall in with and fill out well some other demonstrated and 
accepted proposition, or a number of such other prop- 
ositions ? If so, then that truth is proved. Human reason 



VALUE. 15 

can no further go. The mind rests with relish and content 
in a new acquisition. To apply this to the case in hand, 
— if men were designed of their Maker to buy and sell to 
their own mutual benefit and advancement, if mankind 
have always been buying and selling as towards that end 
and with that obvious result, and if the Future promises to 
increase and reduplicate the buying and selling of the 
Present in every direction without end, and all in the 
interest of a broad civilization and a true and lasting 
progress ; and if, in harmony with these truths, the written 
revelation of God in every part of it assumes that buying 
and selling in its inmost substance and essential forms be 
good and righteous and progressive, and suitable in all its 
ends and methods to illustrate and enforce ends and meth- 
ods in the higher kingdom of spiritual and eternal Life ; — 
then these coordinate truths will logically and certainly 
follow, (1) that Trade is natural and essential and ben- 
eficial to mankind ; (2) that it constitutes in an important 
sense a realm of human thought and action by itself, sep- 
arate from the neighboring realm of Giving, and equally 
from the hostile realm of Stealing ; and (3) that a careful 
analysis of what buying and selling in its own peculiar 
nature is, a thorough ascertainment and a consequent 
clear statement of its fundamental laws, and a faithful 
exposure of what in individual selfishness and in subtle or 
open Legislation makes against these laws, must be of large 
consequence to the welfare of mankind. 

Accordingly, let us now attempt such Analysis and 
Ascertainment and Exposure. This is precisely the task, 
that lies before us in this book — just this, and nothing 
more. The term, " Political Economy," has long been and 
is still an elastic title over the zealous work of many men 
in many lands ; but in the hands of the present writer 
during a life now no longer short, the term has always had 



16 PRINCIPLES OF POLITICAL ECONOMY. 

a definite meaning, the work has covered an easily circum- 
scribed field, and so the present undertaking concerns only 
Buying and Selling and what is essentially involved in 
that. This gives scope and verge enough for the studies 
of a life-time. This has the advantage of a complete 
sphere of its own. Terms may thus be made as definite as 
the nature of language will ever allow ; definitions will 
thus cover things of one kind only ; and generalizations, 
although they may be delicate and difficult, will deal with 
no incongruous and obstinate material. 

1. The grandfather of the writer, an illiterate but long- 
headed farmer, was able to give good points to his three 
college-bred sons, by insisting that they look " into the 
natur ovutr What, then, are the ultimate elements of 
Buying and Selling? What are the invariable conditions 
that precede, accompany, and follow, any and every act of 
Trade? Of course we are investigating now and through- 
out this treatise the deliberative acts of reasonably intel- 
ligent human beings, in one great department of their 
common foresight and rational action. We have conse- 
quently nothing to do here with Fraud or Theft or Mania or 
Gift. Acts put forth under the impulse of these are direct 
opposites of, or at best antagonistic to, acts of Trade. 
They tend to kill trade, and therefore they are no part of 
trade. These, then, and such as these, aside, we will now 
analyze a single Act of Exchange at one time and place, — 
which will serve in substance for all acts of exchange in 
all times and places, and just find out for ourselves what 
are the Fundamentals and Essentials of that matter, with 
which alone we have to do in this science of Political 
Economy. 

Incidental reference was had a little way back to an 
Exchange once made between King Solomon of Jerusalem 
and King Hiram of Tyre. Let that be our typical in- 



VALUE. 17 

stance, (a) There were Uvo persons^ Solomon and Hiram. 
Those two, and no more, stood face to face, as it were, to 
make a commercial bargain. They made it, and it was 
afterwards executed. The execution indeed concerned a 
great many persons on both sides, and occupied a long 
period of time ; but the bargain itself, the trade, the ex- 
change, the covenant, concerned only two persons, and 
occupied but a moment of time. It made no difference 
with the bargain as such, with the binding nature of it, 
with the terms of it, with the mutual gains of it, that each 
person represented a host of others, subordinates and sub- 
jects, who would have to cooperate in the carrying of it 
out, because each king had the right to speak for his sub- 
jects as well as for himself, for commercial purposes each 
was an agent as well as a monarch, the word of each con- 
cluded the consent and the action of others as well as his 
own. Nor did it make any, the least, difference with this 
exchange or the advantages of it, that each party to it 
belonged to, was even the head of, independent and some- 
times hostile Peoples. Commerce is one thing, and nation- 
ality a totally different thing. The present point is, in the 
words of the old proverb, — " It takes two to make a bar- 
gain." And it takes only two to make a bargain. When 
corporations and even nations speak in trade, they speak, 
and speak finally, through one accredited agent. We 
reach, then, as the first bit of our analysis of Trade, the 
fact, that there are always two parties to it, " the party of 
the first part and the party of the second part." 

(b) There ivere Uvo desires^ Solomon's desire for cedar- 
timbers to build the temple with, and Hiram's desire for 
wheat and oil with which to support the people of his ster- 
ile kingdom. " So Hiram gave Solomon cedar-trees and fir- 
trees according to all his desire : and Solomon gave Hiram 
twenty thousand measures of wheat for food to his household^ 



18 PRINCIPLES OF POLITICAL ECONOMY. 

and twenty measures of pure oil.'' The desire of each party 
wa!> pei'sonal and peculiar, known at tii-st only to himself, 
but upon occasion became directed towards something in 
the possession of the other, and each at length became 
aware of the desire of the other, and also of his OAvn abil- 
ity to satisfy the want of the other. If Solomon could 
have satistied his desire for timber by his own or his sub- 
jects' efforts directly, this trade would never have taken 
place ; if Hiram or his subjects could have gotten the 
wheat and oil directly out of their narrow and sandy strips 
of sea-coast, this trade ,would not have taken place ; and 
so there must be in every case of trade not only two de- 
sires each springing from a separate person, but also each 
person must have in his possession something fitted to 
gratify the desire of the other person, and each be willing 
to yield that something into the possession of the other for 
the sake of receiving from him that which will satisfy his 
own desire, and so both desires be satisfied indirectly. 

Here is the deep and perennial source of exchanges. 
Men's desires are so many and various, and so constantly 
becoming more numerous and miscellaneous, and so ex- 
tremely few of his own wants can ever be met by any one 
man directly, that the foundation of exchanges, and of a 
perpetually increasing volume of exchanges, is laid in the 
deep places of human hearts, namely, in Desires ever wellr 
ing up to the surface and demanding their satisfaction 
through an easy and natm-al interaction with the ever 
swelling Desires of other men. Here too is a firm founda- 
tion (a chief foundation) of human Society. Reciprocal 
wants, w^hich can only be met through exchanges, draw men 
together locally and bind them together socially, in hamlets 
and towns and cities and States and Nations, and also knit 
ties scarcely less strong and beneticent between the sepa- 
rate and remotest nationalities of the earth. It is certain 



VALUE. 19 

that an inland commercial route connected the East of 
Asia with the West of Europe centuries before Christ, and 
that a traffic was maintained on the frontier of China be- 
tween the Sina and the Scythians, in the manner still fol- 
lowed by the Chinese and the Russians at Kiachta. The 
Sina had an independent position in Western China as 
early as the eighth century before Christ, and five centuries 
later established their sway under the dynasty of Tsin 
(whence our word " China ") over the whole of the empire. 
The prophet Isaiah exclaims (xlix, 12), "Behold! these 
shall come from far ; and behold ! these from the North 
and from the West ; and these from the land of Sinimr 
The second bit of our analysis leads to Desires as an 
essential and fundamental element in every commercial 
transaction. 

(c) There were two efforts^ those of the Tyrians as repre- 
sented by King Hiram and those of the Israelites as rep- 
resented by King Solomon. It was no holiday task that 
was implied in the proposition of Solomon to the party of 
the othar part, — " Send me now cedar-trees, fir-trees, and 
algum-trees out of Lebanon; for I know that thy servants 
are skilful to cut timber in Lebanon; even to prepare me 
timber in abundance, for the house which I am about to build 
shall be ivonderfully great.''' On the other hand, the efforts 
insolved on the part of the people of Israel in paying for 
these timbers, and for their transportation by sea from 
Lebanon to Joppa, were equally gigantic. Solomon's offer 
in return for the proposed service of the Tyrian king was 
in these words, — '•'•And behold, I ivill give to thy servants, 
the hewers that cut timber, twenty thousand measures of 
beaten wheat, and twenty thousand measures of barley, and 
twenty thousand baths of wine, and twenty thousand baths 
of oiir 

The reason why two efforts are always an element in 



20 PRINCIPLES OF POLITICAL ECONOMY. 

every act of traftic, however small or however large the 
transaction may be, is the obvious reason, that the things 
rendered in exchange, whether they be Commodities, Ser- 
vices, or Credits, invariably cost efforts of some kind to 
get them ready to sell and to sell them, and no person can 
have a just claim to render them in exchange, who has not 
either put forth these efforts himself or become proprietor 
in some way of the result of such efforts. Efforts accord- 
ingly are central in all trade. Every trade in its inmost 
nature is and must be either an exchange of two Efforts 
directly, as when one of two farmers personally helps his 
neighbor in haying for the sake of securing that neighbor's 
personal help in his own harvesting, or an exchange of two 
things each of which is the result of previous Efforts of 
somebody, as when a man gives a silver dollar for a bushel 
of wheat. The third bit of the present analysis brings us 
to Efforts, perhaps the most important factor in the whole 
list. 

(d) There were also two reciprocal estimates, the esti- 
mate of King Hiram of all the efforts requisite to cut and 
hew and float the timber, as compared with the aggregate 
of efforts needed to obtain the necessary wheat and barley 
and wine and oil in any other possible way ; and the esti- 
mate of King Solomon of all the labors required to grow 
and market these agricultural products, as compared with 
wliat would otherwise be involved in getting the much- 
wished-for timbers. Such estimates invai'iably precede 
e\evy rational exchange of products. It is not in human 
nature to render a greater effort or the result of it, when a 
lesser effort or the result of it will as well procure the sat- 
isfaction of a desire. Efforts are naturally irksome. No 
more of them will ever be put forth than is necessary to 
meet the want that calls them forth. No man in his senses 
will ever put more labor on anything, with which to buy 



VALUE. 21 

something else, than is necessary to get that something 
else by direct effort or through some other exchange. 
Here we are on ground as solid as the very substance of 
truth can make it. The Jews of Solomon's time were too 
shrewd and sparing of irksome labor to devote themselves 
for years to the toils of the field and of the vat to get by 
traffic the materials for their temple, if they could have 
gotten those materials by a less expenditure of toil in any 
other way. Those Phoenicians of Tyre and Sidon, the born 
merchants of the East, the founders of commercial Car- 
thage in the West, if they could have extorted from the 
reluctant sands of their coast the cereals and the vines and 
olives requisite for their own support with only so much 
of exertion as was needed to get that to market with which 
to buy them, would never have taken the indirect in pref- 
erence to the direct method. They took the indirect, 
because it was the easier, and therefore the better. 

It may, accordingly, be laid down as a maxim, that men 
never buy and sell to satisfy their wants but when that is 
the easiest and best way to satisfy them. It saves effort. 
It saves time. It saves trouble. It divides labor. It in- 
duces skill. It propels progress. But in order to deter- 
mine wliich may be the easier way, requires constant 
estimates on the part of each party to a possible trade. 
Shall I shave myself or go to the barber? Before I decide, 
I estimate the direct effort in the light of the effort to get 
that with which to pay the barber for his service. If I 
trade with him, it is because I deem it easier, cheaper in 
effort, more convenient in time. Trade means comparisons 
in every case — comparisons by both parties — and in the 
more recondite and complicated cases, elaborate compar- 
isons and often comprehensive calculations involving 
future time. 

Now these estimates inseparable from exchanges, and 



22 PRINCIPLES OF POLITICAL ECONOMY. 

these calculations which are a factor in all the far-reaching 
exchanges, are mental activities. They quicken and 
strengthen the minds of men. Trade is usually, if not 
always, the initial step in the mental development of indi- 
viduals and nations. Desires stir early in the minds of all 
children ; efforts more or less earnest are the s})eedy out- 
come of natural desires ; direct efforts, however, to satisfy 
these soon reach their limits ; it is now but a step over to 
simple exchanges, by which the desires are met indirectly ; 
exchanges once commenced tend to multiply in all direc- 
tions, and the estimates that must precede and accompany 
these are mental states, — the more of them, the greater 
the mental development, the higlier the education ; conse- 
quently, commerce domestic and foreign is a grand agency 
in civilization, a constant and broadening impulse towards 
progress in all its forms; and Christianity, as we have 
already seen, is friendly to commerce in its every breath. 
Those, therefore, who talk and preach about Trade as tend- 
ing to materialism^ do not know what they are talking 
about. Because Commodities are material things, and 
because a portion of the trade of the world concerns itself 
with counnodities, these shallow thinkers jump to the con- 
clusion that trade is materialistic. It is just the reverse. 
Let us hear no more from Professor Pulpit or Platform 
that buying and selling is antagonistic to men's higher 
intellectual and spiritual culture, because the present care- 
ful analysis has brought us indubitably to mental Esti- 
mates and prolonged comparisons, which are activities of 
Mind, as the fourth and a leading factor among the radical 
elements of Sale. 

(e) There were tivo renderings^ King Hiram's rendering 
at Joppa the desired cedars from the mountains of Leb- 
anon, and King Solomon's rendering in return at Tyre the 
food products grown in his fertile country. These render- 



VALUE. 23 

ings were visible to all men. Unlike the desires and the 
estimates, which were subjective and invisible ; the actual 
exchange of the products, the culmination of the previous 
efforts, the stipulated renderings by and to each party, were 
outward and objective — " known and read of all men." 
This is the reason why public attention is always strongly 
drawn to this particular link of the chain of events which 
we are now unlocking and taking apart, while other links 
of the series, that are just as essential, almost wholly escape 
observation. The ports and the markets are aj^t to be 
noisy and conspicuous, when the desires and the estimates 
and the satisfactions, without which in their place there 
would be no market-places, work in silence, and leave 
no records except the indirect one of the renderings 
themselves. 

It is of great moment to note here, that each of the two 
parties to an exchange always has an advantage over the 
other, either absolute or relative, in the rendering his own 
product, whatever it may be, as compared with his present 
ability to get directly or through any other exchange the 
product he receives in return. Take the example in hand. 
Cedars and sandal-wood were natural to Mount Lebanon ; 
there were no other workmen in those regions of country 
that could " skill to heiv timber like unto the Sidonians " ; 
the Mediterranean afforded a level and free and easy high- 
way from its northern coast to the Judean seaport at 
Joppa; and all these natural and acquired facilities put 
King Hiram into a posture of advantage in the rendering 
of timber, not only over the Jews, but also over all the 
other peoples in the basin of the midland sea. Still this 
advantage, great as it was, could only be made a real and 
palpable gain to themselves, the proprietors of the timber, 
by means of some exchange with somebody else, by which 
some wants of their own greater than their present want 



24 PRINCIPLES OF POLITICAL ECONOMY, 

of timber, could be supplied by means of the timber. 
They had more of that commodity, and moi'e skill to fash- 
ion and transport it, than their present and immediately 
prospective needs could make use of ; and the only way 
in which they could practically avail themselves of their 
advantages, was, to sell their surplus timber and bay with 
it something that they needed more. Otherwise their very 
advantage perished with them. God has scattered such 
a diversity of blessings and capacities and opportunities 
over the earth on purpose, that, through traffic, on which 
his special benediction rests, the good of each part and 
people may become the portion of other parts and peoples. 
So, on the other hand, of the southern neighbors of the 
Tyrians. There the earth brought forth by handfuls. 
There was an abundance of corn in the land, even to the 
tops of the mountains. Its fruit did indeed shake like 
Lebanon. But there were no cedars there, no fir-trees, no 
sandal-woods. How short-sighted, then, and futile, would 
it have been for the Jews, to try to hang on in their own 
behoof to all the natural advantages that God had given 
to them, and to say. We will not part with the direct re- 
sults of any of them, we will build treasure-cities as they 
did in Egypt, we will store up all the fruits of these fat 
years against the possible coming of some famine years in 
the time to come. That is anything in ordinary times but 
the divine plan. It is anything but the letter and spirit 
of the divine injunction : " fflm that heepeth hack corn the 
people curse ; hut hlessing shall he upon the head of him that 
selleth it''' (Prov. xii, 26). Had they talked and acted 
thus, no temple could then have been built in Jerusalem, 
and the people of that generation would have lost the 
moral and religious impulse and uplifting of their service 
and sacrifice. Their grain would have become worthless 
from its very abundance, and would have decayed on their 



VALTJfi. 25 

hands. They would have missed a great gain for them- 
selves, and would have snatched away from their neigh- 
bors to the northward a providential opportunity for an 
equal gain. 

The general truth must not be lost sight of here, even 
in passing, that all trade whatsoever is based upon a 
Diversity of relative Advantage as between the parties 
exchanging products. If, for example, the Hills of Judah 
and the Mountains of Israel had been covered with tim- 
ber suitable for building the temple, and the coasts of Tyre 
and Sidon and the foot-hills of Lebanon had been fertile 
stretches of arable land, this particular trade would never 
have been thought of and could never have been realized. 
There would have been no gain in it for either party, and 
unless there be a valid gain for both parties at least in 
prospect, no trade will ever spring into being, because 
there would be no motive, no impulse, no reason, in it. 
Unless the Jews could get the timber easier by raising 
grain to pay for it, and the Tyrians get the oil and wheat 
and barley easier by cutting and floating timber to pay for 
them, — no trade ; but the greater easiness to each actually 
came about, because each had an Advantage both natural 
and acquired over the other in his own rendering, and the 
mutual gain of the trade was wholly owing to that circum- 
stance. So far as that matter went, the Tyrians had no 
cause to envy their neighbors the superior soil of the 
south, for they reaped indirectly but effectively a part of 
those harvests for themselves ; and the Jews had no reason 
to be jealous of their northern neighbors on account of the 
noble forests crowning their mountains, because through 
trade they secured easily to themselves a share of that vast 
natural advantage. Diversity of Advantage both natural 
and acquired is the sole ground of Trade both domestic 
and foreign ; and consequently by means of trade the 
peculiar advantages of each are fully shared in by all. 



26 PRINCIPLES OF POLITICAL ECONOMY'. 

It is perhaps less obvious but surely equally true, that 
the greater the relative diversity of advantage as between 
two exchangers, the more profitable does the exchange 
become to each. If the Vale of Sharon had been twice 
as fertile as it was, and the cedars of Lebanon twice as 
large and lofty as they were, the easier and better would 
Israel have gotten its timber, and the more secure and 
abundant would have become the food of Tyre and Sidon ; 
and, therefore, the more unreasonable, or rather the more 
absurd and wicked, would have been any envy or jealousy 
of either of the superior advantages at any point or points 
of the other. So universally. By the divine Purpose as 
expressed in the constitution of Nature, in the structure 
of Man, and in the laws of Society, Trade in good measure 
and degree imparts to each the bounties of all, arms each 
with the power of all, and impels each by the progress of 
all. 

One other important matter is closely connected with 
these two Renderings, which is the fifth bit in succession 
of our present analysis, namely this, that traffic renderings 
always make necessary new and better routes of travel 
and transportation. It is mainly for this reason, that per- 
sons and things have to be carried to distances less or 
greater in order to consummate these Renderings of home 
and foreign commerce, that roads by land and routes by sea 
have been sought for and found, made and made shorter, 
improved as to method and facilitated as to force, from the 
dawn of History until the present hour. It was to get 
the goods of India, and so find a market for the goods 
of Europe, that the earliest land routes between the two 
were tried and maintained. The ground-thought of 
Columbus, meditated on for years, was to discover a new 
commercial way to India ; Magellan with the same intent 
sailed westward through the Straits that wear his name, 



VALUE. 27 

and so circumnavigated the globe ; repeated searches 
mainly with the mercantile view, never long intermitted, 
have attempted ever since the North-West or the North- 
East passage to India; Vasco da Gama in 1497 boldly 
accomplished the East passage, and thus changed for all 
the Continents the channels of trade ; the West now trades 
with all the East through tho Suez Canal, dug for that 
express purpose; and the words, "Panama" and "Nica- 
ragua " are upon everybody's lips, simply because through 
Central America is the shortest and safest route for men 
and goods to and from all the Oceans. 

Quite recently Dr. W. Heyd has announced through the 
Berlin Geographical Society the discovery of two commer- 
cial routes from India to the West not hitherto described. 
Trebizond (on the Black Sea) and Tana (at the mouth of 
the Don) were the chief distributing points. Through 
Tana passed westward the pepper and ginger and nutmeg 
and cloves; and the price of spices is said to have doubled 
in Italy, when the Italians were for a time shut out of 
Tana in 1343. The chief overland route from India to 
Tana ran through Cabul to Khiva by the Oxus, and then 
by land through Astrakhan. The other route to Trebi- 
zond passed through Persia, and came out by Tabriz to the 
Black Sea. It may perhaps be pardoned, if a far homelier, 
more modern, and even local, illustration be given of the 
present point, that trade makes roads. The western wall 
of Williamstown is the mountain range of the Taconics, 
whose general height is about 2000 feet above tide water 
at Albany. Within the limits of this town are four natural 
depressions or passes over this range, which is also the 
watershed between the Hoosac River on the east and the 
Little Hoosac on the west. About the beofinningf of this 
century, the population was quite sparse in both these val- 
leys, while the impulse to travel and traffic over the barrier 



28 PRINCIPLES OF POLITICAL ECONOMY. 

was sufficient to build (wholly at local expense) wagon 
I'oads over each of the four passes, one of which soon after 
became a turnpike between Northampton and Albany; 
and another was built mainly to accommodate the medical 
practice on the west side of the mountain of Dr. Samuel 
Porter — a Williamstown surgeon of local eminence. So 
soon as railroads were constructed to run down these par- 
allel valleys (railroads themselves are perhaps the best 
illustration of the point in hand), the mountain roads were 
relatively deserted, and only two of them are now open to 
transient travel.^ 

Lastly, (f) There were two satisfactions, the satisfaction 
of the southern king in actually obtaining the excellent 
timbers, without which the cherished national temple could 
not have gone up ; and the satisfaction by the northern 
king in the easy receiving of tlie abundant food products 
for the daily maintenance of his court and kingdom. The 
simple story of these commercial transactions between Jew 
and Tyrian indicates clearl}^ enough, what might have 
been anticipated and what always happens in such circum- 
stances, not only a mutual satisfaction at the completion 
of each specific exchange, but also a general relation of 
contentment and peace in consequence of advantageous 
commercial intercourse. " And Hiram, Icing of Tyre, sent 
his servants unto Solomon ; for he had heard, that they had 
anointed him king in the room of his father ; because Hiram 
was ever a lover of David. And it came to pass, when Hiram 
heard the tvords of Solo^non, that he rejoiced greatly, and 
said. Blessed he the Lord this day, which hath given unto 
David a wise son over this great people ; and there teas peace 
between Hiram and Solomon ; and they two made a league 
together^ 

1 See on this general topic, Mommsen's Provinces of the Roman 
Empire, passim. 



VALUE. 29 

It is plain to reason and to all experience, that mutual 
Satisfactions are tlie ultimate thing in exchanges. Our 
present analysis can go no further, for the reason, that we 
have now reached in Satisfactions the end, for the sake of 
which all the previous processes have been gone through 
with. Persons do not engage in buying and selling for 
the mere pleasure of it, but always for the sake of some 
satisfactions derivable to both parties from the issue of it. 
Ordinary self-inspection and foresight and industry being 
presupposed, the issue of exchanges is just what was ex- 
pected by the two persons, the satisfaction of each follows 
as a matter of course, and stimulates to new exchanges in 
ever- widening circles. 

Since the desires of all men, which the efforts of other 
men can satisfy through exchange, are indefinite in num- 
ber and unlimited in degree, there is no end of human 
Satisfactions to be reached along this road of reciprocal 
trade ; and since the very object of all trade and the actual 
result of all trade (the exceptions are infinitesimal) is to 
multiply and reduplicate continually mutual Satisfactions 
among men ; we can see right here what a loss and wrong 
it is, what a wanton destruction of possible human hap- 
piness it is, what a bar to progress among men in comforts 
and powers it is, for nations to impede and to prohibit 
commerce by legislation ! As we shall see more fully in a 
later chapter. Governments can have no moral or constitu- 
tional right to restrict the trade of their people, except in 
the sole interest of revenue or health or morals. 

Such is the constitution of the universe, that a really 
good thing is usually cognate with and inseparable from 
a good many other good things. Buying and selling, as 
we have now clearly seen, springs right out of the nature 
of men in the circumstances in which they are providen- 
tially placed on the earth, and ends in the satisfaction of 



30 PRINCIPLES OF POLITICAL ECONOMY. 

innumerable wants connnon to all men. This makes trade 
a thoroughly good thing in itself; and consequently it is 
intimately associated with many other good things. The 
scriptural instance, that we have been examining, gives a 
neat illustration of this : " a7ul there was peace between 
Hiram and Solomon ; and they two made a league together^ 
The mutually profitable exchange of commodities led to a 
feeling of amity between the two neighboring kings ; the 
feeling of amity led to a treaty of Peace between the two 
adjacent nations ; and the " league " so ratified not only kept 
out war from their borders, but also permitted the unhin- 
dered continuance of profitable exchanges between them. 

So it is always. Peace waits on Commerce. Good-will 
among the nations is strengthened by the ties of interest 
and profit among their citizens. The mercantile classes as 
such are always averse to war, because war is the natural 
enemy of exchanges. Thus traffic leads to peace and tends 
to maintain it, and peace preludes increased prosperity, and 
commercial prosperity under freedom is wholly friendly to 
mental and moral progress, and Christianity walks before 
and all along this line of individual and national blessing. 
The commercial treaty of 1860 between France and Eng- 
land has tended powerfully, perhaps more powerfully than 
any other single cause, to keep those formerly inter-bel- 
ligerent nationalities in peace and amity ever since. 

We will now put into a little table the final results of 
the present analysis of Buying and Selling. The ultimate 
elements seem to be these : 

1. Two Persons. 4. Two Estimates. 

2. Two Desires. 5. Two Eenderings. 

3. Two Efforts. G. Two Sati.^factions. 

The thoughtful reader will note in this table the fact, 
that three of these elements are objective, that is, outward 



VALUE. 31 

and visible ; and the other three are subjective, that is, 
inward and invisible. Persons, Efforts, Renderings, are 
seen and known of all men ; Desires, Estimates, Satisfac- 
tions, can be directly known only to the persons who feel 
and make them. This is a peculiarity of Political Economy, 
that has been far too little observed even when it has been 
observed at all. Objective and subjective elements in it 
meet and mingle in each transaction. Indeed, they alter- 
nate, as is shown in the table above : first a Seen, and then 
an Unseen, Element throughout. It is this commingling 
of outward and inward, visible and invisible, that makes 
all the difficulty and gives all the fascination in Political 
Economy. Whatever carries us into the steady though 
billowy play of universal numan nature is at once difficult 
and fascinating. 

Quite contrary, however, to a common imp*ression, the 
certainty both of action and prediction in all the other Sci- 
ences as well as in Economics lies rather in the unseen ele- 
ments than in those that are seen. Take for an example the 
calculation of an eclipse : it is not so much from what is 
visible in the heavens and on the earth that the astron- 
omer infers and predicts to the instant the shadow of one 
orb thrown upon another, as it is from the wholly hidden 
but ever-enduring forces of gravitation constantly relating 
these orbs one to the other. So it is of the Sciences 
generally ; progress is made in them and certainties are 
reached in connection with them, " while we look not at the 
things which are seen, but at the things which are not seen ; 
for the things which are seen are hut for a time ; hut the 
things which are not seen are everlasting" Invisible De- 
sires and Satisfactions felt in connection with Exchansres 
are among the most constant elements of human nature ; 
they, as it were, give birth to the relatively more transient 
(though visible) data of Efforts and Renderings ; while 



32 PUINCIPLES OF POLITICAL ECONOMY. 

inferences and ccnielusions and even predielions may be 
securely drawn I'roni all of these, giving a solid ground for 
Political Econoni}^ to stand on, — almost as solid as the 
ground t)f the chief Physical Sciences. 

"2. We will next examine the inmost nature and the out- 
ward manifestations of Value. "• Value " is by much the 
most important word in the Science of Economics ; and we 
nuist, therefore, comprehend it thoroughly, root and branch. 
Nearly all the writers in English have used in place of 
this the word " Wealth " and those in other languages 
some equivalent and equally concrete word ; but the pres- 
ent wi'iter fully satisfied himself some twenty-live years 
ago, that it is impossible to use that word to any advan- 
tage in economical discussions, owing to its inherent 
ambiguities and concrete associations in the minds of men. 
lie utterly discarded the word at that time, and has found 
not the least occasion to pick it up again since, and believes 
now that his substitution of the word " Value " in place of 
it will ultimately be seen to have Ix'en his greatest contri- 
bution U) that Science, to which he devoted his life. 

Even professed and excellent logicians, like John Stuart 
Mill, fojnid the word "-Wealth" an insoluble element in 
the science of Economics ; he commenced his great work 
by writing, that it was not really needful to define the 
word which nevertheless he laid at the foundation of his 
discussions, that '■"every one has a notion sulliciently cor- 
rect for common purposes of what is meant by Wealth"; 
he goes on, however, to give at least a half-dozen definitions 
of the word, no tM'o of which are at all consistent with 
each other, only one of which embodies a clear and scien- 
tific conception, and even to this one he himself does by 
no means coherent!}^ adhere throughout his treatise. No 
wonder, that this great man died thoroughly dissatisfied 
with his own work in Economics, and wishing for longer 



VALUE. 33 

life in which to recast and improve it ! No wonder, too, 
that the crowd of writers both English and American, 
many of them able and thoughtful and otherwise logical, 
who have been content to continue to use this irreducible 
and utterl}^ unscientific word at the bottom, have made a 
mess of it ! 

In dropping the word, " Wealth," accordingly. Political 
Economy has dropped a clog, and its movements are now 
relatively free and certain ; and it is all the more incum- 
bent on the Science for that very reason to define the good 
word that it substitutes for a bad one with absolute clear- 
ness, to explain it through and through until it become 
quite transparent, and then always to use it in its defined 
and economical sense, and none other, even though the 
same word be properly enough used in other senses in 
common speech and in other than scientific relations. 
Exactly that is what we are now going to attempt to do 
in a simple and consecutive order. 

(a) Perhaps it will help us to find out precisely what 
Value is by seeing as clearly as possible at the outset what 
it is not. It is not easy/, and never can be made so, to 
teach and to learn distinctly what Value is in its ultimate 
nature and constant changes. Here is the one unavoid- 
able difficulty that lies at the very threshold of Political 
Economy ; and this difficulty, which is not found as in the 
case of " Wealth " in the meaning of the word but in the 
complex character of that which the word describes, once 
overmastered, and one walks thereafter with ease and pleas- 
ure throughout the economic domain. It would be wrong 
and cruel to deny that just here is one hard place in the 
road for teacher and pupils to get over. It arises wholly 
from the nature of the subject, as we shall soon see, and not 
at all from the insufficiency of the word, Value. We have 
already seen fully, that Buying and Selling in each and 



34 PRINCIPLES OF POLITICAL ECONOMY. 

every transaction is complex and relative, involving twelve 
elements every time ; that Desires and Estimates and Ren- 
derings are especially relative, — each party to a trade de- 
sires something in possession of the other, estimates that 
something relatively to something in his own possession, 
and finally renders to the other his own something for the 
sake of receiving the other's something. Now everybody 
is used to all this and practically understands it perfectly, 
but it is complicated and reciprocal nevertheless, and Value, 
which is the single birth of the two Renderings, though 
perfectly intelligible to him that takes pains, is not a thing 
to be seized once for all at a passing trot. 

Value, then, is not a quality of single things, belonging 
to them as if by nature, as hardness is a quality of a rock 
or gravity is an attribute of gold; because all physical 
qualities in physical things, all that which makes or helps 
to make anything such as it is, may be learned by a study 
of the things themselves by themselves ; a careful exami- 
nation and analysis of the mechanical and chemical proper- 
ties of any physical thing will discover all its distinguishing 
characteristics, all that makes it that particular thing in 
distinction from all other things ; but it is plain already, 
that the Value of anything (if it have value) cannot be 
found out by studying that particular thing by itself alone ; 
the questioning of the senses however minute, the test of 
the laboratory however delicate, can never determine how 
much anything is worth, because that always imj^lies a com- 
parison between Uvo things, or more strictly a comparison 
between two Renderings in exchange. Value is not an 
attribute of single things : not even if the things be physi- 
cal and tangible. 

Now two other kinds of things are bought and sold 
besides physical and tangible things, nameljs personal ser- 
vices and commercial credits ; and it is very plain, that 



VALUE. 35 

Value cannot be a quality of any one personal service 
rendered, as looked at by itself, such as the service of a 
physician towards a fever patient, because the service in 
and of itself might be the same whether rendered to his 
own child or the child of one of his patrons, while in the 
former case there would be no value, and in the latter 
there would be ; and so too the very name " commercial 
credit " implies an exchange of two Renderings, out of 
which Value always emerges, and not at all an attribute 
of one credit considered by itself. Value is no more a 
characteristic of single intangible services and claims than 
it is of single intangible commodities rendered. 

And what makes all this still more certain is, that Value 
even in physical things, and perhaps still more in services 
and claims, is all the while changing under demand and 
supply, now rising and then falling, while the physical 
properties of things, that make them what they are, are 
fixed and unchangeable. A gold eagle, for example, has 
certain primary qualities as gold, without which it would 
not be gold ; it is hard and heavy and colored : gold is 
gold the world over and in all ages : Value is not one of 
these primary qualities, nor even a secondary quality, nor 
any quality at all, of gold as such ; because circumstances 
are readily conceived and have often occurred, in which 
gold has no Value even in exchange ; for instance, among 
a crew abandoned at sea, a bag of gold belonging to one 
of the sailors might not buy even a biscuit belonging to 
another ; all the natural qualities of the gold are present, 
— it is still yellow and weighty and solid, — but its Value 
has escaped altogether. Gold is always 19 times heavier 
than water: specific gravity is a quality and is constant 
in all physical things : Value is not a quality in this sense 
at all, inasmuch as it is something that is constantly chang- 
ing, rising or falling, and not infrequently disappearing 
altogether, leaving no sign. 



36 PRINCIPLES OF POLITICAL ECONOMY. 

Ignorance of this vastly important truth has pecuniarily 
ruined thousands upon thousands of the people of this 
country during the last 20 years. They have gone into 
the mining of metals, gold and silver and copper, some- 
times as individuals and more often as companies gather- 
ing in the driblets of investors, under the notion that if 
they could only get these metals out of the ground their 
Value would be just as secure and fixed as their physical 
qualities. They found out their mistake in bitterness of 
spirit. For example, the Value of an ounce of silver has 
gone down and down and down as the quantity of silver 
excavated has increased under zealous digging, in accord- 
ance with the universal and pitiless law of Suj)ply and 
Demand. So of copper. And both these great m^onetary 
interests went to Congress and secured the passage of laws 
designed to lift artificially the Values that were sinking 
naturally under increased Supply, the silver men by a law 
requiring the United States to buy and mint at least 
82,000,000 in silver each month whether the silver dollars 
were needed or not, and the copper men by a law imposing 
a tariff-tax on foreign copper that has actually lifted the 
price two cents a pound on the average of the whole 20 
years above the average price of copper in the markets of 
the world. 

Take another illustration of disappearing Values, this 
time in lands, long supposed to be the most stable in value 
of all human possessions. Whole tiers of farms in the 
writer's native town in New Hampshire, and for that mat- 
ter all over New England as well, that in his boyhood 
supported large families, and when sold usually brought a 
fair price, are now abandoned of their owners as wholly or 
comparatively worthless, and are allowed to grow up into 
forest again, without a sign of present human habitation 
upon them. Value is something that needs to be studied 
carefully, if it is to be fully understood. 



VALUE. 37 

(b) Perhaps the origin of the word, "Value," will throw 
some light upon its nature and changes. Etymology can 
never be safely despised in scientific discussions, although 
words are perpetually changing their meaning in the mouths 
of men. No science can afford to build upon the transient 
meaning of a word ; and yet it is clearly possible so to use 
words as to reach and describe ultimate and unchanging facts 
in science ; and some knowledge of the original meaning of 
words is always a help in getting at those definitions and 
analyses of facts that are permanent in science. Let us 
hold fast to the cheering truth exemplified on all sides of 
every science, that a just analysis and exact description 
of ultimate facts in any department of knowledge are for 
all time, in spite of the transient meaning of current words. 

The present word is derived from the Latin Valere, to 
pass for^ to he worth. There is a strong hint of a compari- 
son in the original meaning of the word, and the current 
use of it both in Latin and English develops the hint into 
a certainty. In common language, when the Value of 
anything is asked for, the answer always comes in the 
terms of something else. If the question be. How much 
is it worth ? the answer is. So many dollars or cents. 
Now the cents or dollars are very different things from 
those whose value is thus inquired after; and so we see 
again from another point of view that Value is a relative 
matter, since it clearly implies a comparison between two 
distinct things ; and, if so, it is clearly enough not a quality 
of any one thing, and of course it would be useless to try 
to ascertain the Value of anything by a study of that thing 
alone. Etymology thus easily brings us up to our present 
vital question, and will assist us to solve it completely. 

(c) What is Value ? Plainly it is the result of a com- 
parison instituted between two things, using the word, 
" things," here in its broadest sense. But who institutes 



38 PRINCIPLES OF POLITICAL ECONOMY. 

the comparison? And who is competent to announce the 
result of it in Value ? A comparison is required in order 
to ascertain the length of a stick of timber in feet and 
inches, and a carpenter's square is the instrument by which 
the comparison is made, and it makes no difference in the 
result whose the square is or whose the stick of timber is, 
since the square and the stick have in common the physical 
(piality of length, and a simple comparison of square with 
stick determines the length of the latter, and one man in 
this case may determine the result by himself alone, and 
it is not needful that he be the oivner of either of the 
things compared. 

But it is a different kind of comparison from this that 
issues in Value. Let us suppose an exchange of a bushel 
of wheat for a mason's trowel : there is no common phys- 
ical quality, as length, between the wheat and the trowel ; 
and it is evident, that no one man can measure in any form 
one of these two commodities by means of the other. It 
is a peculiar kind of comparison that is involved in any 
and every trade ; and the first peculiarity of it is, as we 
have already seen in another connection, that it always 
requires " two persons " to make it ; and each of the two 
persons must always be the virtual oumer of one of the 
two things exchanged. A thief may indeed go through 
the motions of selling a stolen horse, but as he is not the 
owner of the horse there can be no sale, and the actual 
owner may take his horse wherever he finds it even in the 
hands of an innocent third party. In other words, there 
must ever be "two efforts" also, two legitimate efforts 
giving a valid claim of ownership to each of the two parties 
in the exchange. 

And there is a second distinctive peculiarity in that 
comparison that ends in Value, namely, the two things 
to be exchanged are not compared directly with each other 



VALUE. 89 

at all, as square and stick are compared, but in the light 
of the " two desires " with which we are already familiar, 
and in that of the "two estimates" resulting therefrom. 
The owner of the wheat desires a trowel, and the owner 
of the trowel desires a bushel of wheat ; the former esti- 
mates the effort it has already cost him to procure the 
wheat in a sort of comparison with the effort that it would 
otherwise cost him to procure the trowel, and he does not 
trade unless the trowel seem more and better to him than 
does the wheat ; the latter estimates the effort it has cost 
him to procure the trowel in a sort of comparison with 
the effort it would cost him to procure otherwise the wheat 
that he wants, and he does not trade unless the wheat then 
and there seem more desirable than the trowel, which he 
already has ; and these two relative estimates of the two 
owners must coincide, that is, the owner of the wheat must 
think more of the trowel than of the wheat, and the owner 
of the trowel must think more of the wheat than of the 
trowel, before these two parties can ever trade. So of all 
traffic whatsoever. 

Now the third and last distinctive peculiarity of that 
kind of comparison out of which Value emerges is this, — 
an action is necessary in order to complete the comparison. 
Desires and estimates may have been never so busy, but 
no Value can ever be born until an outward action takes 
place in the " two renderings " of our former analysis. 
Then first we come out upon plain and solid ground. We 
leave the play of the subjective elements, which yet are 
essential in the premises, and touch firmly objective real- 
ities. The trowel-maker passes over his tool in the sight of 
men to the wheat-grower in firm possession and oivnership, and 
takes in return for it from him the grain, which the latter 
passes over to the former for the sake of receiving the trowel. 
The two "satisfactions" follow as a matter of course, and 



40 PRINCIPLES OF POLITICAL ECONOMY. 

that whole transaction as a commercial exchange and as 
the sole subject of Political Economy is ended. 

But cohere is the ^'- Value," of which -we have been in 
search P The answer is easy and certain and unevadible. 
The Value is in the Renderings, and nowhere else. The 
value of the trowel is the wheat, that is actually given in 
exchange for it ; and the value of the wheat is equally 
the trowel, for the sake of getting which the wheat was 
rendered. What was the Value of King Hiram's cedar- 
timbers ? The oil and wheat actually returned in pay for 
them. What was the Value of the oil and wheat sent 
northward by King Solomon? The timbers rendered in 
direct exchange for the same. This is not merely the only 
possible answer to the question, What is Value ? but it is 
also a perfectly comjjlete and satisfactory answer. Com- 
mon language here corresponds exactly with scientific 
language. "How much did the horse cost?" "One 
hundred dollars." The dollars have nothing whatever 
in common with the horse, except that they express his 
Value at the time ; the horse has nothing in common with 
the dollars, except that it expresses the Value of the dol- 
lars at the time. It is just as exact to say, it means 
precisely the same thing to say, the dollars are worth the 
horse, as to say, the horse is worth the dollars. 

In general terms, the Value of anything is something 
else received in return for it, when each owner renders the 
one for the sake 0/ getting the other. This is the whole of 
it, so far as any specific valuable thing is concerned. We 
shall indeed need after a little, and shall have no trouble 
in finding, an abstract and universal definition of " Value," 
as an abstract and scientific term perfectly circumscribing 
the field of Economics. Here and nov/ we are dealing 
with the simpler concrete question. What is the value of 
any specific valuable thing? The unvarying answer is, 



VALUE. 41 

Some other specific valuable thing already exchanged for 
the first ! There may be expected value, estimated value, 
but actual value there is none, until a real exchange has 
settled how much the value is. The value of anything is 
something else already exchanged for it. Value is not 
simply a relation subsisting between two things, the result 
of a careful comparison between them, but rather an 
actual fact established in connection with them. The uni- 
versal formula of Value is quid i^ro quo, in which formula 
quid stands for one of the valuables and quo for the other, 
and pro unfolds the motive of each owner for the recipro- 
cal receiving and rendering. 

Here a caution is needful. Because nobody can tell 
what the value of anything is until something else has 
been put over against it in order to get it and actually 
received therefor, and because the only possible way to 
express the value of either is in the terms of the other, — 
the trowel is worth the wheat and the wheat is worth the 
trowel, — one must not therefore jump to the conclusion 
that the value of either is settled for all time or even for 
any future time. It is only settled for this time. In 
Economics as in Christianity, Now is the accepted time. 
There is nothing fixed in Values, and never can be from 
the nature of the case, because Desires are personal to 
individuals, and Efforts fluctuate with times and persons, 
and Estimates that wait on these vary from necessity, and 
the Renderings of to-day may not be the chosen renderings 
of other persons in the same articles to-morrow. Value is 
not a quality at all, still less is it a permanent quality, of 
anything ; it is a relation established between two things 
when these are in the hands of two given persons ; but 
now when these are in the hands of two different persons, 
whose views are pretty sure to differ from the former, and 
a new relation is sought to be established between these in 



42 PKmClPLES OF POLITICAL ECONOMY. 

the old way of Estimates, is it strange that a new balance 
is struck, and Value is expressed in quite different terms ? 

One of the chief charms of Political Economy is the 
open secret, that it deals not with rigidities and inflexible 
qualities and mathematical quantities and the unchanging 
laws of matter, but with the billowy play of desires and 
estimates and purposes and satisfactions, all of which are 
mental states, and all of which are subject in the general 
to ascertainable laws, though laws of a quite different kind 
from those of Mechanics. Values come and they go. 
Within certain limits and under certain conditions they 
may be anticipated and even predicted, but never with the 
precision of an eclipse or the result of a known chemical 
combination. There is a useful and fascinating Science of 
Value, as we shall see indubitably by and by in the present 
chapter ; but it is a science that deals primarily with per- 
sons and only secondarily with things, with mind and not 
with matter, with the general undulations of the sea and 
not with the crests of the waves. And all this is so, 
because Values are relative, because the announcements in 
the market-place to-day may stand listed differently to- 
morrow and very differently next year, and because old 
values may disappear altogether and many new ones come 
in, all in accordance with the incessant changes in the 
wants and labors and fashions and projects of men. 

We are now in a good place to see once for all the sharp 
distinction there is between Utility and Value. These 
two are often confounded to the deep detriment of our 
Science ; and no clear thinking is possible in Economics 
without drawing this line sharp, and then holding it fast; 
for the hazard of this confusion is all the greater, because 
Utility is always connected with Value, although it is a 
totally different thing from Value. We Avill see. Utility 
is the simple capacity of anything to gratify the desire of 



VALUE. 43 

anybody. This is at once the etymological as well as the 
popular signification of the word. It is derived from the 
Latin utor^ to make nse of, a word that is often conjoined 
in Latin with fruor^ to enjoy ; so much so, that the two 
verbs are often put together, utor et fruor, and also often 
without the conjunctive, utor fruor. Utility, then, is a 
quality of innumerable things. Anything that is good for 
anything, anything useful, anything that has the power to 
still the desires of any person, has Utility. But multi- 
tudes of things that have this capacity to gratify human 
desires are never bought and sold, and therefore can have 
no Value, since nobody will give anything for them. The 
air we breathe, the water we refresh ourselves with from 
spring or brook, the light of the sun and moon and stars, 
the fragrance of the flowers, the mountain prospect that 
delights the eye, — all these, and thousands more, possess 
the highest utility, but no value whatsoever. They are 
free. They are the bounty of God. They are never bought 
and sold. They are a vast class of things by themselves, 
with which Political Economy as such has nothing to do. 

Nevertheless the element of Utility comes into every 
case of Value, because the element of Desire comes into 
every case of Value, and whatever merely satisfies the 
Desire of any person is Utility, whether that capacity be 
the direct gift of God or whether the Efforts of men have 
been employed to bring it about. It is just here that we 
see the precise function of our " two efforts " in each case 
of Value, in distinction from mere Utility in all cases : 
much of utility is absolutely free, no effort of men having 
been put forth to secure it, for example, the fragrance of 
the wild rose ; much more of utility is the commingled 
bounty of Nature and the gratuitous effort of men, for 
example, the fragrance of the domestic rose brought by 
the householder himself into his own yard for the gratifi- 



44 PRINCIPLES OF POLITICAL ECONOMY. 

cation of his own family; while by much the most of 
utility is commingled free gift of God and the compen- 
sated efforts of men, for example, the fragrance of the 
bank of roses cultivated and cared for by the hired gar- 
dener. It is important for our purposes to discriminate 
carefully the three kinds of Utility : (1) what is wholly 
disconnected from the efforts of men, and comes freely 
from the hand of God; (2) what is mingled with the 
unpaid efforts of men, so that the satisfaction of the de- 
sire comes partly from Nature and partly from unbought 
effort; and (3) the compound utility that is partly free 
gift and partly the result of compensated labor. The last 
is the only kind of Utility that stands in any connection 
with Value. 

And even this is very different from Value. Utility in 
all three of its forms — now free, now onerous, now partly 
bought — is always a quality of one thing by itself, going 
straight to the satisfaction of some desire, and there an 
end. It is simplicity itself compared with Value, which 
is always a resultant of several things, and is specifically 
a relation of mutual purchase established between two 
"renderings," each of which expresses the value of the 
other, in each of which is embodied an " effort " made by 
each of the two " persons " rendering, and each of which 
excites a " desire " and an " estimate " before being passed 
over in ownership to another, and a " satisfaction " after- 
wards. 

The utility in every valuable rendering comes partly 
from free Nature and partly from compensated effort, but 
it is remarkable, that a principle, with which we are to 
become very familiar later on, namely. Competition, elimi- 
nates for the most part from all influence upon Value that 
portion of the Utility that is the free gift of God. The 
great Father never takes pay for anything, and never 



VALUE. 45 

authorizes anybody to take pay in his behalf ; and, more- 
over, has arranged things so, that it is exceedingly diffi- 
cult for any person to extort anything from another person 
on the strength of anything that God has made, and man 
has not improved. Take, for example, ten horses of any 
general grade, brought into the same market by their ten 
owners for sale. These men did not make these horses, 
but they have cared for and trained them, or at least have 
become proprietors by purchase or otherwise of the results 
of such care and training. The Utility in each horse is 
compound, consisting partly of what God has done for 
him and partly of what man has done for him, — the two 
parts inextricably interwoven, — and all ten are offered 
now for sale. Each of the owners v/ould indeed be glad 
to get something for his horse on the ground of what God 
has done to make him sound and strong and fleet, in addi- 
tion to a fair compensation for what he (and his prede- 
cessors) has done in raising and breaking him ; but the 
cupidity of all is likely to be thwarted by the ultimate 
willingness of some to sell their horses for a price covering 
the element of human " efforts " involved, and the action 
of these tends to fix a general rate for the whole ten, and 
thus the gratuitous element is eliminated from influence 
on Value. Even if the ten owners should combine for a 
higher price, there are doubtless a plenty of horses of that 
general grade elsewhere, some of whose owners are con- 
tent to get back an equivalent for their own and others' 
" efforts " expended on their horses ; and so the action of 
these tends to fix the general price for horses of that kind 
for that time and place at a point not above a fair estimate 
of the onerous human elements involved ; thus throwing 
out by the action of competition all effect of natural Utility 
upon the Value of horses then and there. So of all other 
products of that kind. 



46 PRINCIPLES OF POLITICAL ECONOMY. 

It is true, that in certain unique cases, in which compe- 
tition has little or no play, because there is only one or 
a very few owners of such unique products, one cannot 
certainly say that free Utility may not influence the Value 
to lift it above the gauge of human efforts involved ; but 
such cases are rare, and relatively unimportant ; and the 
tendency is immensely strong, under the natural and bene- 
ficial condition of things, for Values to graduate themselves 
through the reciprocal estimates and renderings of com- 
merce, down to the actual and onerous contribution of me7i 
to that Utility that underlies Value. 

Thus we are brought again and again from differing 
points of view to the " two renderings " as central and 
determinative in Value, and also more specifically to the 
" two efforts " of persons rather than any free contribution 
of Nature as constituting that portion of the compound 
Utility, whose function it is to gratify the " two desires " 
that precede the realization of Value, — that portion of the 
utility in any rendering that must be compensated for by 
the other rendering. Now in order to reach in a moment 
more our final definition of " Value," a definition, it is 
believed, that will cover all the cases and take the life out 
of endless disputes, we need a scientific term to carry easily 
and exactly the meaning of any economic rendering. Let 
that word be Service. We must have it in its generalized 
meaning, to cover the renderings of all the three kinds, in 
distinction from the term "personal services," which we 
have already used and shall continue to use to designate 
one class only of things exchanged, in contradistinction 
to "commodities " and to "credits," the other two classes. 

Value ls the relation of mutual purchase estab- 
lished BETWEEN TWO SERVICES BY THEIR EXCHANGE. 

We offer this definition of " Value " to our readers in 
much confidence, that they will find it exact and adequate 



VALUE. 47 

and altogether trustworthy. No one of them, however, is 
precluded from attempts to improve it in breadth and 
brevity and beauty; and all are invited to pick logical 
flaws in it, whether of ambiguity or superfluity or defi- 
ciency. Many minds and many hands in many lands have 
left their impress on parts of this definition, for example, 
Aristotle in Greece and Bastiat in France and Macleocl in 
Great Britain ; the present writer thinks, that he has bet- 
tered the definition of Bastiat, namely, " Value is the rela- 
tio7i of two services exchanged" by precisely defining the 
relation as one of mutual purchase ; and he is sure, that 
he has improved the definition of Macleod, namely, " The 
value of any economic quantity is any other economic quan- 
tity for which it can be exchanged,''^ by making his definition 
at once more abstract and more general and more definite, 
and also by escaping the slight implication in the word, 
" quantity," that only material things are exchanged in 
economics. 

The immense importance of securing first a clear and 
correct Definition of " Value," which is the foundation- 
word and the circumference-word of Political Economy, 
and the7i of usino^ that term and all other scientific terms 
in the Science in their defined senses only, will certainly 
be appreciated by those who have wandered in the wide 
wilderness of the discussions on the undefinable word, 
" Wealth," and especially by those who have reflected 
most upon the vast and illimitable significance of eco- 
nomic Exchanges on the welfare of mankind. Associate 
Justice Miller of the Supreme Court of the United States, 
not an Economist in the technical sense, referred in 1888, 
in words that are worth remembering, to " the philosophical 
maxim of modern times, that of all the agencies of civiliza- 
tion and progress of the human race commerce is the most 
efificient," In August of that year John Sherman of Ohio, 



48 PRINCIPLES OF POLITICAL ECONOMY. 

a man far enough from being a technical Economist, said 
in the Senate of the United States, that " it is almost a 
crime against civilization " to maintain commercial barriers 
between Canada and the United States. 

There were tokens a plenty in the year of Grace just 
referred to, that the Science of Value in all the lands of 
the civilized world, and particularly in the United States, 
was drawing to itself a new and more popular esteem. It 
was seen more clearl}' and felt more deeply than ever 
before, that this science has a weighty word for every man 
and woman and child in the world ; that there are certain 
Rights in every one inherent and inalienable to buy and 
sell for his own advantage ; that most if not all of the 
Governments, under the lead of comparatively few selfish 
and powerful men, were infringing upon these Rights, and 
robbing under the forms of Law the masses of their citi- 
zens to immense amounts for the special benefit of these 
very men ; that the only sure defences of the people 
against these abuses of all kinds were in the maintenance 
and diffusion of the scientific and consequently disinter- 
ested principles and maxims of a sound Political Econ- 
omy ; that such a science was only friendly to the broadest 
rights, to universal gains, to illimitable increase in human 
comforts and powers, to international fellowship, to peace 
on earth and good-will among men ; that, accordingly, a 
science of such scope and tendencies must be encouraged 
and cultivated and improved ; that what had been crude 
in it, and narrow, and merely national, must be sloughed 
off ; that the English and insular and special speculations 
of a century ago, which regarded " Wealth " as consisting 
of material things only, excepting however considerable 
portions of Adam Smith's immortal book, were antiquated 
and unusable ; that the Science had really moved into a 
broader and still a well-circumscribed field, new and more 



VALUE. 



49 



permanent foundations were being laid, and fresh contri- 
butions from all countries should be welcomed ; and that 
the time had fully come, when the accepted truths of this 
Science, like those of the other developed sciences, should 
be practically and steadily applied to the betterment of 
mankind. Under these broadening and inspiriting and 
uplifting conditions Political Economy, as never before, 
thanked God and took courage. 

3. Having now a satisfactory definition of Value, and 
knowing accordingly just what Valuables are in clear dis- 
tinction from all other things in the world, we must 
examine with some care two or three of the most general 
facts and laws and limits of Value, before we pass in the 
next following chapters to study in detail each of the three 
kinds of Valuables, namely, material Commodities, per- 
sonal Services, commercial Credits. 

(a) Since Value in general is the relation of mutual 
purchase between two Services, and consequently the spe- 
cific value of either can only be expressed by the other, — 
one Valuable being always measured by the Valuable 
exchanged against it, — it follows as a matter of course 
that such a thing as a general Rise or Fall of Valuables 
is an impossibility. The rise of one valuable involves of 
necessity a fall in the other, as the fall of one implies the 
rise of the other. If the articles exchanged be bushels of 
wheat and dollars of silver, and if a bushel buys a dollar 
to-day, then wheat is worth a dollar a bushel ; but if wheat 
rises next week, so that a dollar will not buy a full bushel, 
that is precisely the same thing as saying, that the dollar 
has fallen in its purchasing-power as compared with the 
wheat. Such specific changes in the purchasing-power of 
one Valuable over another are incessant throughout the 
commercial world, and a merchant's sagacity consists in 
anticipating these so far as possible and in availing himself 



50 PRINCIPLES OF POLITICAL ECONOMY. 

of them alertly and prudently; but each one of us must 
needs see clearly and hold firmly in mind, that each fall in 
the purchasing-power of a Valuable means a corresponding 
rise of power in the other Valuable, — if the first buys 
more of the second than before, then the second must buy 
less than before of the first ; and, consequently, a general 
rise of Valuables is a contradiction in terms, and so of 
course is a general fall of Valuables. 

This brings us to Price. Price is Value reckoned in 
money ; and this is the only difference in the meaning of 
the two terms. When one valuable is sold against another, 
even when one of the two is money, each is the Value of 
the other : Value is the general and universal term in 
Economics. When any other valuable is sold against 
money, the amount of money it buys is called its Price : 
Price is a specific and restricted term in Economics. Since 
we shall study Money thoroughly in a later chapter, and 
there explain the origin and extent of its functions through- 
out, it is only in order to remark here, that it is for con- 
venience' sake, that is, to make easy the comparison of 
valuables one with another, that Value in commerce is 
commonly reduced to Price. Money becomes a sort of 
measure, by means of which to compare all other valuables 
with eacli other. In order to ascertain the Price of a Val- 
uable, it only needs to be sold once against money ; but 
in order to ascertain the Value of a Valuable, it would 
need to be sold once against all other valuables whatso- 
ever. This last is clearly impracticable; and so Value 
for practical purposes is reduced to Price. The General 
is made Particular for convenience. Hence we have 
" Prices current," but never Values current. 

Now it will be plain to all, how there may easily be and 
often is a general rise or fall of Prices while a rise or fall 
of Values is impossible. Price is a relative word as much 



VALUE. 61 

as Value is, but it does not relate to so many things. 
Price is specific, and Value universal. Both equally 
involve buying and selling, but one sale of a single valuable 
against money leads to Price, while ten thousand sales of 
the same valuable against other than money would not 
conduct to complete Value. That would require a sale of 
this valuable against all other valuables in the world, and 
a complete statement of the comparative results. 

General, or at least universal, changes of Prices in rise 
or fall in any given country are due to general and great 
changes in the Money current there. Subordinate changes 
in other valuables, money being supposed to remain uni- 
form, will of course vary their Prices ; but it is impossible 
that such changes should affect equally or even generally 
all the various and numberless valuables of a whole coun- 
try ; while some are coming easier, others are coming 
harder, while some are more desired than formerly others 
are less desired, and this will bring in of course altered 
prices, some higher and some lower ; but a general rise of 
all prices, or a general fall in the same, can only come 
about by great changes of some kind in the circulating 
medium, that is, the money, of the country. For example, 
in the United States, between 1862 and 1878 inclusive, a 
government paper promise, called greenbacJcs, was the cur- 
rent money of the country ; owing to its excessive issue, 
and to some doubt in the minds of the people whether the 
paper would ever be redeemed in gold, it soon became 
depreciated as compared with gold, the premium on which 
over the paper money varied at different times from 1 to 
185 per centum; as all other valuables were then sold 
against greenback money, which had declined, their prices 
naturally rose in some sort of proportion as the medium 
fell ; general values remained much as before, but general 
prices were much enhanced ; and when, after the resump- 



52 PRINCIPLES OF POLITICAL ECONOINIY. 

tion of specie payments in January, 1879, gold became 
again the standard medium, general prices declined in full 
accordance with the same universal principle reversed. 

(b) Prices, as we have now seen, are only a subordinate 
form of Values : the universal law that regulates all the 
variations of them both, within certain fixed limits to be 
examined shortly, is called the Laav of Supply and 
Demand. This is perhaps the most comprehensive and 
beautiful law in Political Economy. We shall look at it 
now only in outline: the filling in will be the pastime and 
profit of all that is to come. 

" Demand " is a technical term in Economics, and ac- 
cordingly needs to be defined, and then always used in its 
defined sense. So is " Supply." Demand is the " desire " 
of a '-'- person''^ for sometliing in the hands of another person^ 
coupled ivith the possession of something else capable of 
buying that something. Mere desire has no function in 
Political Economy : hungry and penniless children passing 
by the stalls of a great market, have no influence on the 
prices or values of the viands, on which they cast their 
eager glances : only desires accompanied by " efforts " 
competent to excite the desires and to pay for the efforts 
of another are a Demand. Supply is the same thing 
as Demand looked at from the other side. Supply is the 
correlative of Demand. The Supplyer is a person, who 
has in his possession something desired by the Demander, 
and who in turn desires something in the hands of the 
Demander, when both are willing to exchange their " ren- 
derings." There is no economical difference in the position 
of the Demander and the Supplyer. Each is equally a 
Demand and a Supply with reference to the other. It is 
the old and ever-recurring case of Value, the propositions 
being here stated in their most universal terms. 

For simplicity's sake, however, and for convenience, 



VALUE. 53 

without altering the substance of the definitions a parti- 
cle, the valuables when looked at as a Demand are practi- 
cally reduced in all markets to their equivalent in Money, 
so that Money offered or ready to be offered against any 
other exchangeable thing constitutes what is called in 
commercial language a Demand ; and this is sufficiently 
accurate as well as current, although it must always be 
remembered that each valuable in any market in reality 
constitutes a Demand for another, and is equally a Supply 
in reference to that other. Supply is any exchangeable 
thing offered for sale against any other exchangeable thing. 
For example, corn in any market is at bottom a Demand 
and a Supply at once for every valuable offered in that 
market at that time, say, ploughs for one thing ; but in 
the talk of the market, the presence of corn there, or its 
being ready to be immediately brought there and offered 
in exchange for money, constitutes what is called a Supply 
of corn ; money offered, or ready to be offered, in exchange 
for corn, constitutes what is called a Demand. 

On this account Money seems to play a much more 
important part in trade than it actually does play; the 
corn is sold in the terms of money, that is, for dollars 
and cents as denominations of Value; convenience dic- 
tates such a reduction of general Value to this particular 
form of it, because this is found to make easier the ulti- 
mate exchange ; but there is not one chance in a hundred, 
as trade runs nowadays in the larger markets, that this 
seller of corn will take his pay for it in actual money 
whether metallic or paper ; money is never an ultimate 
product, but only an intermediate one ; this seller of corn 
wants perhaps a plough or some other farming implement, 
and ten to one he will take for his corn a bill or order in 
some form on the seller of ploughs, and it will be corn 
for a plough, each becoming a Demand and a Supply for 



54 PKINCIPLES OF POLITICAL ECONOMY. 

the other, though money or rather its denominations has 
acted as an agent in bringing about the final trade ; the 
details of all this in manner and result will be as plain as 
day when we come to study " Money " and " Credits " ' in 
following chapters ; while the essential point to be noted 
here is, that all Valuables are a Demand and Supply 
as towards one another. In other words, the world over, 

A MARKET FOR PRODUCTS IS PRODUCTS IN MARKET. 

What, then, is Market-Value returned in the terms of 
Money? And what is the universal Law of it? 

Market-value is the present rate of exchange between 
dollars and cents and any other valuable, that can be fairly 
graded in a class made up of valuables similar to itself ; 
and the law of market-value is the equation of Supply and 
Demand, that is, the current rate is adjusted when money 
enough is offered to take off within the usual times the 
valuables on hand and offered for sale. If Demand for 
any reason become quickened, and the Supply be not 
increased, there is competition among buyers for the stock 
in market, and the market-rate rises or tends to rise. If, 
on the other hand. Demand become sluggish, the Supply 
remaining the same, there is a like competition among the 
sellers to dispose of tlieir stock, and market-value sinks 
or tends to sink. So far it is the simple action on Value 
of the element of one " desire " expressing itself through 
a money-demand, the elements of "desire" and of "efforts" 
expressing themselves through Supply being supposed to 
remain stable, and the pulsations in the market-rate follow 
accordingly. 

How far can this simple action go ? Demand increas- 
ing. Supply remaining as before, market-rate rises : how far 
can it rise from this cause ? Here we must remember that 
Demand not only acts upon Value, but also Value reacts 
upon Demand. As Value rises, the number of those whose 



VALUE. 55 

means or inclinations enable them to purcliase at the new 
rate is constantly diminished : there are ten persons who 
may wish an article at one dollar, of whom not over four 
will wish it at two dollars, and perhaps only one at three 
dollars. Every rise in market-rate then, under the impulse 
of enlarged Demand, tends to cut off a part of that De- 
mand, that is, to lessen the number of those who will pur- 
chase at the increased price ; and the rate consequently 
can only rise to that point, whatever it be, where an equal- 
ization takes place between the Supply and Demand, 
between the quantity of flour, for example, offered at the 
enhanced rate, and the quantity of money in the hands of 
those willing to exchange it for flour at the higher rate. 

Just so in the reverse way, when Demand is slackened, 
Supply continuing as before, the market-rate is sure to 
decline ; but declining rates tend strongly in turn to in- 
crease the demand by bringing the article within the range 
of a larger number of purchasers ; Society is like a pyra- 
mid, each lower stratum is broader than the one above; 
and so the decline of rates under a weaker Demand is 
arrested by a stronger Demand coming from a wider circle 
of buyers, and a new market-rate is determined at the 
point of equalization between the new Demand and the 
old Supply. Thus every rise or fall of Demand tends to 
check itself, and will check itself in all the great classes of 
valuables, even without any variations in the Supply; 
everything oscillates under the variations of Demand; 
while the point of stable equilibrium, if we may use the 
expression of anything so unstable as Market-value, is 
always the equation of Supply and Demand. 

But all considerable variations of market-rate are com- 
monly checked at an earlier point than the one just indi- 
cated by variations in the Supply. A sharper Demand 
carries up the market-rate, and a higher market-rate com- 



56 PRINCIPLES OF POLITICAL ECONOMY. 

nionly acts upon Supply to enlarge it, and an increased 
Supply too cliecks the rise of market-rate. Per contra^ a 
slacker Demand lowers market-rates, and lowered rates 
often lessen the Supply by the action of holders and spec- 
ulators, — holders withdrawing their stock for a better 
market, and speculators buying now when the article is 
cheap to store away until it shall be dearer. Thus rise of 
market-rate from Demand growing stronger is checked 
doubly ; first, by curtailing the number of would-be buyers, 
and second, by enlarging the Supply : the fall of market- 
rate from Demand growing Aveaker is checked doubly ; 
first, by increasing the number of consumers of a now 
cheaper article, and second, by a diminution of Supply by 
the action of holders and s2)eculators. This double and 
harmonious working of the law of the Equalization of 
Demand and Sup])ly is one of the most comprehensive and 
beautiful laws in Political Economy. 

Besides this, we must note the effect on Value of condi- 
tions in Supply only. Demand being supposed to continue 
steady. There are three classes of valuables in i-espect to 
the law of their Supply. (1) When the Supply is scant, 
and cannot be increased at all, as is the case with choice 
antiques and certain gems and jiaintings by the old mas- 
ters, their value may rise to any point under the action of 
Demand, there is and can be in such cases no market-rate, . 
and the individual value will be struck at the point of 
equalization of the demand then existing with the supply 
there offered. For instance, the French Government paid, 
in 1852, 015,300 francs for a painting by Murillo, which 
had belonged to Marshal Soult. The genuine INIurillos 
are comparatively fcAV, and their number cannot be in- 
creased, and their merit causes a strong "desire" to jiossess 
them, and their value rises in connection with the limita- 
tion of Supply to a point beyond which no one purchaser 



VALUfi. 57 

can be found. When this painting was offered in Paris 
for sale, many "persons" of course were anxious to buy it, 
there was but one painting, there could be but one pur- 
chaser, value rose under the influence of a sharp Demand, 
the rise could not be checked by any duplication of the 
Supply, and the equation was complete and the value for 
that sale determined when one party distanced all other 
competitors and offered a sum greater than any one else 
would give. The same principle controls all sales of this 
sort, and is practically the principle of the Auction, whose 
very name indicates its nature in this regard, that Demand 
becomes restricted to one party, and that the highest 
bidder. 

(2) When the Supply, instead of being absolutely 
limited, can only be increased with difficulty or after the 
lapse of time, similar but less extreme results will be 
observed. Let us suppose, that pianos are selling in some 
rural community at |300 each, that there are twenty persons 
in the place who want a piano immediately, that there are 
but fifteen pianos on hand, and that the number cannot be 
increased for half a year. The market-rate will certainly 
rise above $300. How much above ? To that point, at 
which only fifteen of the twenty will be willing to pur- 
chase at the new rate. The equation of Supply and 
Demand will be reached by a rising rate which cuts off 
five competitors. This is the principle, working only 
roughly in practice through the estimates and good judg- 
ment of dealers and purchasers. A better illustration of 
this second class of cases is, perhaps, the Grains and other 
agricultural products. When these have been gathered, 
there is no more home supply for a year ; and any defi- 
ciency in the crops will raise their market-rate, not at all 
in the ratio of the deficiency, but according to the relations 
of the diminished Supply to a new Demand. Since the 



58 PRINCIPLES OF POLITICAL ECONOMY. 

abolition of the Corn-Laws in England in 1846, and the 
resulting ease of grain-imports from abroad, a deficiency 
of home crops has no such effect on the price of cereals as 
it had before that time ; when, according to Tooke's His- 
tory of Prices, an expected falling-off of one third in the 
crops often doubled and sometimes quadrupled the usual 
prices ; which shows that the world ought to become one 
country in respect to all food supplies, as indeed happily it 
is now for the most part, each country allowing them to be 
disti-ibuted freely everywhere in accordance with this law 
of Demand and Supply. Speculation is more busy in grain, 
in cotton, and in such things generally, because a new 
Supply can only be had once a year ; early information is 
eagerly sought at the trade centres in regard to the pros- 
pects of the growing crops, and has its influence one way 
or the other on current prices ; but the world is so wide 
and all the parts of it now so closely connected together 
by steamship and telegraph, that the prices of the great 
food staples are remarkably uniform over the earth, and 
Speculation has not the chance it once had to count and 
" corner." 

(3) In the only remaining and by far most comprehensive 
class of cases, in which the Supply of Commodities and 
Services and Credits can be readily and indefinitely 
increased to meet enhanced Demand, and easily with- 
drawn from market and stored when Demand declines, 
each rise and fall of market-rate tends to be speedily 
checked through the mere action of Supply ; and the 
doubly and harmoniously working Law but just now 
referred to keeps Value in this class of cases comparatively 
steady all over the world. 

(c) It only remains in this branch of the general dis- 
cussion on Value, to indicate the Limits, within wliich all 
oscillatioiis of Value are contained. These extreme limits 



VALUE. 59 

are specially to be found in the element of Value which 
we have called " Efforts." We have clearly seen already, 
that " efforts " (or Labor) are not, as has been often 
asserted, the cause of Value, but only one of several con- 
stituent causes ; if Labor be asserted to be the sole cause 
of Value, the inquiry becomes instantly pertinent, what 
is the cause of the value of Labor; yet we know, that 
" efforts " always stand in preconnection with value, and, 
the mutual " desires " being presupposed, there must 
always be Limitations of Value lying partly in the efforts 
made by the person serving and partly in the efforts saved 
to the person served. In every valuable transaction, each 
of the parties is reciprocally serving and served, and it is 
clear, that the two would not exchange " renderings " 
unless the service which each renders to the other is less 
onerous than the " efforts " which each would have to 
make if each served himself directly. For example, it 
takes a certain effort for me to bring water from the spring 
for the use of my family ; I am willing to pay a neighbor 
for bringing it for me, but I should not be willing to make 
a greater effort for him in return than the effort is to 
bring it myself ; neither should I be willing to make an 
effort for him in return which I regarded just as onerous 
as the bringing the water myself ; and unless there is some 
service which he will accept less onerous to me than that, 
I shall continue to bring the water. On the other hand, 
he will surely not render the service to me of bringing the 
water, unless it be less onerous to him to do so than the 
doing that for himself which I am ready to do for him. 

This principle, applicable to all exchanges whatsoever, 
draws on the one side the outermost line, beyond which 
Value never can pass. It may be asserted with confidence, 
that no person will ever knowingly make a greater effort 
to satisfy a desire through exchange, than the effort need- 



60 PKINCIPLES OF POLITICAL ECONOMY. 

ful to satisfy it without an exchange. Therefore, it fol- 
lows, that all exchanges lessen onerous efforts among men 
relatively to the satisfaction of their desires, and tend to 
lessen these more and more as exchanges multiply in num- 
ber and variety, otherwise the exchanges would not take 
place. 

Moreover, within this outermost Limit of Value, which 
is made by the comparative onerousness of the respective 
" efforts," there is a second limitation of a similar kind to 
be found specially in the element which we have called 
" estimates." The estimate of each exchanger is based at 
once on his own effort about to be rendered and on his 
desire for the return service offered : the element of effort 
in the case of both being considered for the time as fixed, 
Value will vary according to the varying desire of each 
for the return service of the other, affecting of course the 
" estimate " of each, and furnishing also a secondary Limit 
of Value. To pursue the same illustration, suppose I 
regard the effort required to bring the water myself as 10.; 
that there are several persons, who would be glad to do 
that service for me at a return service which I consider as 
8; that there are two persons, who are willing to do it for 
something which I estimate at 6 ; and that there is only 
one person, who will do it for a return service which I 
regard as 5. It is evident, that the extreme limits of that 
service to me are 10 and 5. Higher than 10 it cannot go, 
lower than 5 it cannot sink. But why have I before me 
three possible classes of renderers ? Because the persons in 
each class, while estimating their own efforts alike in the 
proposed rendering to me, have varying " desires " as 
towards a possible rendering from me to them, and conse- 
quently put differing " estimates " upon the possible tran- 
sactions. The man who will bring the water for 5 has for 
some reason (no matter what) a stronger desire for the 



VALUE. 61 

return than anybody else, and I should of course employ 
him so long as he would serve me on those terms ; if he 
decline the exchange, I fall back on one of the two persons 
in the class above him, and Value rises now from 5 to 6, 
and will be steadier there than it was before ; if each of 
these in turn should give out, I should fall back upon the 
larger class ready to serve me at 8, and Value would be 
very steady at that rate, because there are numerous com- 
petitors; and by no possibility could it rise above 10. 
Between 10 and 5 the value may fluctuate, but it cannot 
overpass these Limits in either direction under existing 
circumstances. 

Therefore we may conclude, that the maximum Value of 
any Service in exchange will be struck at the point where 
the recipient will prefer to serve himself, or go without the 
satisfaction, rather than make the exchange ; and the mini- 
mum Value of any Service in exchange is struck at the 
point below which the recipient cannot get himself served 
even by him who most highly estimates the return service 
offered. 

(4) We come now to the last and most important Inquiry 
in this initial chapter, namely this, Can there he, and is 
there, a strict Science of Buying and Selling? Is there a 
Science hy itself, clear and certain, that covers and controls 
Valuables ? 

Here we must go slowly, if we would go surely. We 
must first find out exactly what a Science is in general, 
and then ascertain in particular whether Political Econ- 
omy bears all the marks and stands all the tests of the 
other genuine Sciences. What is a Science ? 

A Science is the body of exact definitions and sound prin- 
ciples educed from and applied to a single class of facts or 
phenomena. 

The very first condition, accordingly, of any science is. 



62 PRINCIPLES OF POLITICAL ECONOMY. 

that there be a single class of facts, objective or subjective, 
that can be separated from all other classes of facts, in the 
mind by a generalization and in words by a definition, and 
that such generalization and definition be clearly made and 
held; the second condition is, that the class of facts so cir- 
cumscribed and defined be open to some or all of the logi- 
cal processes of construction, of which the most important 
are Induction and Deduction ; the third condition is, that 
the subordinate definitions and working principles within 
the inchoate Science be all educed from and applied to 
these circumscribed facts in strict accordance with these 
well-known logical processes ; and the last condition is, 
that these definitions and principles have gradually be- 
come " a bod^,^' in which there is an organic arrangement 
of parts, all being placed in a just order and mutual inter- 
dependence. There is no old Science, and there can be 
no new Science, in which these four conditions do not 
meet and become blended ; and the beauty of it is, that 
this Definition applies to any Science in all stages of its 
growth. No one of all the Sciences is as yet completed ; 
but just so soon as any correct definitions and principles 
are drawn from and applied to any class of things clearly 
circumscribed as such, and these definitions and principles 
are orderly arranged in a bodi/, there is an incipient 
Science ; and its progress towards perfection will proceed 
in precisely the same manner in which its foundations 
have been laid ; new facts and principles and definitions 
will gradually be discovered, and these when reapplied to 
the class of things out of which they have sprung, will 
lead to corrections and adjustments and enlargements of 
the Science ; and no matter how far these logical processes 
may be carried, the general Definition with which we start 
will also be found ample at the end of the journey. 

All of the Sciences without exception have been devel- 



VALUE. 63 

oped into their present position in just this manner ; and 
they fall easily into three great classes, namely, the Exact, 
the Physical, and the Moral Sciences. The ground of this 
triple classification is partly the distinct subject-matter in 
the three classes of Sciences, and partly the distinctive 
prominence of one or more of the logical processes of con- 
struction in each. 

Thus, the class of the Exact Sciences consists only of 
the formal Logic, and pure Mathematics. These two are 
distinct from all other sciences, because their logical method 
of procedure is wholly Deductive. Deduction is the pro- 
cess of the mind, by which we pass from a general truth 
to a particular case under it, that is to say, from more to 
less inclusive propositions. Stuart Mill argues at much 
length in his book on Logic, that even the axioms of pure 
Mathematics are originally gained by Induction, while 
others claim that the truth of these axioms is perceived 
intuitively^ but no matter how this point is decided, the 
construction process of the Pure Mathematics is from the 
General to the Particular. So it is also with the Aristo- 
telian logic, whose Major Premise, whether only supposed 
to be true or intuitively perceived or inductively proved is 
always General in its terms. This is the form of Aristotle's 
Syllogism : — All sinners deserve to be punished ; John is 
a sinner ; and therefore, John deserves punishment. 

Physical Sciences are those concerned with the classifica- 
tions and laws of action belonging to material substances. 
There are a great circle of these, of which Astronomy, 
Botany, and Chemistry, may serve as examples. They 
have been mostly developed since the time, and in accord- 
ance with the methods, of Lord Bacon; who, in strong 
reaction against the Deductive logic of Aristotle, exalted 
Induction or the mode of generalizing from particulars^ as 
the true way of building up Sciences ; and, as the subject- 



64 PEINCIPLES OF POLITICAL ECONOMY. 

matter of each of the physical sciences is well open to 
observation and experiment, to Induction and Deduction, 
and to corrective verifications, both inductive and deductive, 
the new method proved remarkably pregnant and success- 
ful. Each of these sciences has a distinct Class of objects 
or phenomena to which its attention is directed ; the class 
is circumscribed by the scientific Conception and Defi- 
nition ; its devotees as a rule are skilled in using the 
Baconian tools ; and consequently, its conclusions receive 
the confidence and control the action of men. All of the 
Physical Sciences are constantly enlarging " the body of 
exact definitions and sound principles " connected with 
their several classes " of facts or phenomena." 

Moral Sciences are those concerned with the classifi- 
cations and laws of action belonging to beings having 
Thoughts and Desires and Will. The most developed of 
these sciences at present are Metaphysics, Ethics, and 
Economics. Each of these is concerned with a single 
class of phenomena, which may be exactly conceived of 
and defined, and is open to the logical processes by which 
alone Sciences can be built up. But Induction cannot 
march up with quite so sure a stride, nor Deduction 
descend with so large degrees of certainty, in relation to 
persons endowed with free-will, as in relation to physical 
substances held firm in the grip of unvaried law. Still, 
the doubt always attaches far more to the actions of an 
individual than to the actions of the masses of men. It 
is much easier to know human nature in general, than one 
man in particular, because many Inductions guided by 
observation and History make it almost certain how masses 
of men will act under a given set of conditions, while any 
one majj act in a contrary way. Deduction, accordingly, 
cannot hold quite the same ])lace in the Moral Sciences 
so far as individuals are concerned, as it holds in the 



VALUE. 65 

Physical and Exact Sciences ; but this lack is perhaps 
more than made up by other advantages. Experience in 
the moral sciences corresponds to Experiments in the phys- 
ical sciences. Then there is the great advantage of Intro- 
spection ; since each man has within himself the means of 
interpreting and testing the inductions of Metaphysics, 
Ethics, and Economics. Then also there is the great 
resource of Feigned Oases, which, provided only they be 
cases possible to occur, open up to Reasoning a new means 
of proving and correcting. Besides these, which it enjoys 
in common with them. Economics, as we shall soon see, 
possesses one other ^reat advantage over and above the 
rest of the Moral Sciences. 

Since, then, Political Economy deals primarily with 
Persons, and only quite secondarily with Things, it is, 
under the definition and on every ground, a " moral sci- 
ence " ; yet it must not be confounded in the least with 
what is sometimes called the science of Morals, or Ethics. 
There is one word that marks and circumscribes the field 
of Ethics, and that word is Ought ; there is one word also 
that marks and circumscribes the field of Economics, and 
that word is Value. Now, the idea of obligation, on which 
ethical science is founded, and the idea of gainful exchange, 
on which economical science is founded, are totally distinct 
ideas. The imperatives of ethical obligation rest upon the 
consciences of men, and Duty is to be done at all hazards ; 
guilt is incurred if it be neglected ; while pecuniary gains 
and losses, however large, do not, or at least ought not, 
weigh a feather against an intuition of Ptight and Wrong. 
Economics, on the other hand, does not aspire to place its 
feet upon this lofty ethical ground ; no man is ever under 
any moral obligation to make a trade ; he properly makes 
it. or not, according to his present sense of its gainfulness 
to himself ; and so economic science finds a solid and ade- 



66 PRINCIPLES OF POLITICAL ECONOMY. 

quate footing upon the expedient and the useful. Ethics 
appeals only to an enlightened conscience, and certain 
conduct is approved because it is Right, and for no other 
reason ; Economics appeals only to an enlightened self- 
interest, and exchanges are made because they are mutually 
Advantageous, and for no other reason ; each of the two 
Sciences, therefore, has a basis and sphere of its own, and 
the grounds of the two are not only independent, but also 
incommensurable. 

We will now apply seriatim to Political Economy the 
four fundamental conditions belonging to all recognized 
Sciences, and so determine for ourselves whether it be 
not a strict science, and thus worthy in its leading propo- 
sitions of all acceptation. 

(a) Every science must have to begin with a definite 
Class of facts, which lie in an easily circumscribable field, 
and which are not likely to be confounded with other facts 
of a differing nature. Economy has such a class of facts, 
that lie in such a field, and that cut themselves off by 
sharp lines from all other things. Valuables is its class 
of things. It has nothing to do with any other class of 
things. Its field is Value, or Sales, or Exchanges. This 
field is perfectly definite. Sales are never confounded 
with gifts, and are never confounded with thefts. They 
have a distinctive character of their own. They have 
always been in the world, will always be in the world in 
ever-multiplying volume, and no one ever mistakes their 
main features for anything else. Anj^thing whatsoever 
that is salable, or is about to be made so, comes within 
the view of Economics, and scientifically it cares for noth- 
ing else. While it finds its field definite, it also finds it 
broad. It has no wish to encroach on other sciences, nor 
will it tolerate any encroachments on its own. Before 
anything is sold, or is being made ready to sell, it cares 



VALUE. 67 

nothing what other science employs itself upon that thing ; 
after the thing is sold, Economy loses its interest in it, 
and other sciences may take it up if they choose. Valua- 
bleness is the one quality that constitutes the Class of 
things with which the Science is conversant, and it claims 
complete jurisdiction over all things just so far forth as 
they have this one quality, and no farther. Now there is 
in the actual world such a Class of things ; its exterior 
boundaries have been exactly ascertained by a long series 
of Inductions and Deductions, tentative, corrective, and 
confirmatory; and accordingly. Political Economy has now 
in full possession the first grand condition of a Science. 

(b) This great class of facts, thus reached by logical 
Generalization and grasped and held by a mental Con- 
ception and fixed by an adequate verbal Definition, is 
remarkably open to all the logical processes of reasoning, 
by which alone sciences are constructed, and thus possesses 
in full measure the second grand condition of the Sciences. 
Not one logical resource is denied to the economists : all 
the tools of the scientific workshop are at their hands. 
Let us now catalogue these in their order. 

(1) Induction. This is the logical and universal process, 
by which the mind naturally passes up from a certain num- 
ber of observed cases, in which a certain quality appears, 
to a Generalization, which is a conception of the mind fol- 
lowed by a statement in words to the effect, that all possi- 
ble cases of that kind will exhibit the quality already 
observed in the feiv eases. It has as its basis a confidence 
in the resemblances and uniformities of Nature ; it pro- 
ceeds upon the axiom that Nature throughout is consistent 
with herself; and this confidence has been ten thousand 
times justified in the issue, when it is found that Nature 
preordained the Sciences by causing grand analogies to 
run through each department of her works, including man 



68 PRINCIPLES OF POLITICAL ECONOMY. 

and his works. The structure of the human mind corre- 
sponds with these objective resemblances ; it seizes upon 
them, and delights in them, and naturally and joyfully 
infers and concludes that what has been observed of a part 
may be safely affirmed of the whole of that kind ; accord- 
ingly, the world over, when certain things are found to 
be true in a considerable number of cases, the mind leaps 
over space and time to a whole class, and frames for itself 
a general rule or principle, which binds all the cases into 
one bundle, and thereafter confidently affirms what is 
known to be true of some to be probably true of all. This 
is inductive Generalization ; and the strength and the joy 
of it is well expressed by Descartes : "• I have thought that 
I could take as a just generalization that which I very clearly 
and vividly conceived to he trueT 

Experience in Economics corresponds to Experiment in 
the Physical Sciences, and furnishes to Induction all the 
fuel it can ask for to feed its logical furnace and to forge 
the chains that bind the Cases to the Classes. Personal 
experience in buying and selling, local experience in buy- 
ing and selling, and national experience in buying and sell- 
ing, with all that belongs to these, the records of which 
are full to overflowing, afford to the inductive inquirer in 
Economics an inexhaustible supply of material. Instances 
abound. Particulars may be gathered up one by one on 
every hand and linked into the inductive chain. If any 
doubt be felt about the strength of any one of these chains, 
another one may at once be linked in terms drawn from 
another field of Experience with a view to test the strength 
of the first. Most fortunate from this point of view is the 
United States, because here there are States with substan- 
tive powers of control over most matters of trade within 
their borders, as well as a Nation with sovereign powers 
of control over some points of trade within the country 



VALUE. 69 

as a whole. This feature has given birth to commercial 
experiments as well as commercial experience of all kinds; 
and Induction rejoices in all these abundant materials for 
generalization thus furnished free of cost to Science, 
though unfortunately not free of cost to the People. 

(2) Deduction. This is a logical process exactly the 
reverse of the first, in that it descends from a generalized 
statement reached by the inductive process to some partic- 
ular, or subordinate class of particulars, ostensibly covered 
by the general maxim. Induction examines a number of 
particulars, and then makes a leap, it may be a long 
leap, over all intervening particulars, to its Generalization 
clamping them. The main use of Deduction is to make 
sure of any one of these overleaped particulars, which may 
come into importance, and thus confirm the generalization, 
or correct it. It is not strictly true, what is often alleged 
against deductive reasoning, that there is nothing new in 
its result, that the Induction had already passed through 
that particular in rising to its Generalization, and therefore 
to descend to any particular link to examine that, is some- 
thing useless. The exact truth is, that it is useless to 
examine again deductively the very particulars that were 
carefully studied inductively, but on the other hand there 
is always much actually untraversed territory between 
these already examined particulars and the inductive gen- 
eralization, and Deduction is often very useful in carrying 
us down to questionable points in this territory. Even 
Lord Bacon, who scorned the syllogism, admits this : 
" Axioms duly and orderly formed from particulars easily 
discover the way to new particulars.^ and thus render sciences 
activeJ" 

We will illustrate this by a reference to Franklin's 
famous induction to prove the identity of lightning with 
electricity. Only one experiment, and that a very rude 



70 PRINCIPLES OF POLITICAL ECONOMY. 

one, was needful in this case ; although usually many 
experiments, or the careful observation of many particu- 
lars, are necessary in inductions ; but the generalization 
having been gained. Deduction had a chance to try its 
hand ; it had long been observed that electricity could be 
conducted from point to point, and if electricity and light- 
ning be identical, then lightning can be so conducted; 
therefore, deduced Franklin, a pointed iron rod elevated 
above buildings will harmlessly conduct lightning from 
the clouds into the ground. Deduction gave mankind the 
lightning-rod, and so made one point of science '■'•active^'' 
as Bacon phrased it ; and it is noticeable, that Turgot's 
felicitous epigram turns on the deductive rather than the 
inductive side of Franklin's experiment : Eripuit coelo ful- 
men sceptrumque tyrannis. 

Let us catch up another illustration from the science 
of Botany, to show how Deduction may strengthen and 
sharpen an inductive result. The botanists say, that 
apple-tree blossoms are always five-petaled, because blos- 
soms from a large number of apple-trees in various locali- 
ties have been observed to have just five petals to the 
blossom ; so far, they affirm inductively, and indeed se- 
curely ; but they have also reached by means of another 
induction a much broader law of plant-life, namely, that 
outside-growers, when they have petaled flowers at all, 
always have them five-fold; now apple-trees are outside- 
growers ; and therefore, deductively also, and conclusively 
beyond shadow of question, apple-tree blossoms are five- 
petaled. 

Political Economy is just as open to Deduction as it is 
to Induction, and the two continually are reaching each 
other the hands of economical reasoning, not always 
indeed pursuing each a separate and distinct path to the 
end, as in the botanical instance just adduced ; because in 



VALUE. 71 

practice the two processes mingle constantly, and neither 
is carried out in full and dae form, since premises used by 
the mind are often dropped in the statement, and shortened 
forms of expression take the place of long-drawn-out for- 
mulas. But all good reasoning in Economics, as in all 
other sciences, is analyzable into one or other of these two 
processes, both based alike on the uniformities of Nature 
and the structure of the human mind. 

Deduction has not quite the same scope and certainty 
in Economics as in the Physical Sciences, because any one 
may act contrary to the vastly probable action of many 
individuals ; still, it is a safe and potent process in econom- 
ics, since it may descend securely from the larger masses 
to the smaller, even though perchance the individual 
escape, because of the simplicity and universality and cer- 
tainty of the impulses that lead men to exchange. John 
Bascom gives the reason well, why both Induction and 
Deduction have so firm a grasp upon this science : '■'•Be- 
tween one dollar and two dollars a man has no choice, he 
must take the greater; between one day and two days of 
labor he must take the less; betiveen the present and the 
future he must take the present. This is not a sphere of 
caprice, nor scarcely even of liberty ; the actions themselves 
present no alternative, and, if an alternative giving an oppor- 
tunity for choice does arise, it arises from some partial or 
individual impulse, from some one of those transitory and 
foreign influences, which, while rippling the surface, neither 
belong to nor affect the current of the stream^ 

(3) Introspection. Everybody buys and sells, and al- 
most everybody watches the action of his own mind enough 
to see what are his motives in buying and selling, and soon 
comes to know also that the other party has corresponding 
motives. Even the child knows perfectly, that it takes 
two to make a bargain, that each party renders something 



72 PRINCIPLES OF POLITICAL ECONOMY. 

to the other, that each is glad to part with something for 
the sake of receiving something from the other, and that 
this higher esteem put by each on wliat is taken from the 
other makes for each the gain of the trade. A very little 
introspection tells anybody, that were this higher esteem 
wantinof in the minds of either of the two, the trade would 
not take place at all. Everybody within the pale of com- 
pos mentis knows, that, were his own desire for the render- 
ing of another to increase, he himself would offer more of 
his own rendering rather than forego the trade ; and he 
rightly infers, that what is true of himself is true of all 
other men ; and so, every seller rightly tries to display his 
wares in such a way as to increase the desire of buyers for 
them ; knowing full well from his own experience in buy- 
ing that, other things being equal, they will be willing to 
render him more for them in consequence. 

The phrase above, "rightly infers," is based upon the 
truth, that all men are remarkably alike in certain great 
departments of action ; and that, in no department are 
they so nearly alike as in this of buying and selling. 
Introspection, therefore, an easy self-knowledge open to 
all persons alike, and a personal experience in these mat- 
ters that everybody gains, give most trustworthy answers 
to Inductive inquiry along these lines. Trade is natural 
and gainful, as any person can see, who stops to ask him- 
self why he has made, or is about to make, a given trade ; 
and if natural and gainful to A/m, equally so for precisely 
the same reasons to the party of the other part ; hence no 
law or encouragement is needed to induce any persons to 
enter upon traffic ; and any law, or artificial obstacle, that 
hinders any two persons from trading, who would other- 
wise trade, not only interferes with an inalienable right 
that belongs to both, but also destroys an inevitable gain 
that would otherwise accrue to both. Political economy 



VALUE. 73 

is very fortunate, accordingly, in being able to make its 
appeal to the common sense of all men, giving sound 
starting-points through self-knowledge possessed by all 
men, guiding to safe steps by means of Induction all who 
like to generalize and prove, and especially breaking up 
current fallacies by asking the potent question, " How 
would you like it yourself ? " 

(4) Feigned Cases. There are two kinds of these, namely, 
those which might be realized in actual fact, and those 
which never can be so realized. The acute mind of the 
Greeks marked in their flexible language a decided differ- 
ence between the class of suppositions that might possibly 
become facts, and another class of suppositions impossible 
to become facts, by developing a distinct form of expression 
for each. This distinction must always be borne in mind 
by those who use or note in economical discussions the 
expedient of Feigned Cases. Reasoning is always legiti- 
mate and often pregnant from suppositions, whenever 
these are such as might readily become facts of experi- 
ence, because in that case the argument proceeds upon 
recognized and inductive resemblances ; but otherwise, no 
inference at all can be drawn from them, because it is an 
universal truth in Nature and in Logic, ex nihilo nihil fit., 
out of nothing nothing can come. In plausible supposi- 
tions impossible to become facts is a nest of logical falla- 
cies, that need to be watched. A good illustration may be 
found in the Monetary Conference at Paris in 1881. Del- 
egates were there from all the nations of Europe, from the 
United States, and even the distant India. Some of these 
in their eagerness for a factitious ratio of value between 
gold and silver forgot the important distinction now in 
hand, and argued of the good results to flow from the 
realization of a supposition, which in fact never could he 
realized, Mr. Evarts voiced the French and American 



74 PRINCIPLES OF POLITICAL ECONOMY. 

delegates in this declaration : " Any ratio noiv or of late in 
use b(/ any cominercial nation, if adopted by an important 
group of states, coidd he maintained ; hut the adoption of a 
ratio of 15^ of silver to 1 of gold would accomplish the prin- 
cipal object with less disturbance in the monetary syste7ns to 
be affected by it than any other ratio^ The fallacy in this 
passage is in the words, " could be maintained," which are 
a supposition, and what is much worse, a supposition con- 
trary to fact, from which all arguing is nugatory. Why 
it is contrary to fact will be seen at length in the following 
chapter on Money. 

On the other hand, a supposition that may clearly become 
a fact is a substantive thing, and logical inferences may be 
drawn from it, just as geometrical inferences may be drawn 
from a supposed circle : the circle on the page is not a per- 
fect circle — no such circle was ever drawn — but suppose 
it perfect, as it might possibly be, and argument becomes 
at once valid. Let us take another Monetary Conference 
at Paris in 1867 as an illustration : its judgment as voiced 
by Mr. Ruggles of New York was taken with logical pro- 
priety, when the great benefits of an international coinage 
of gold alone were argued and announced, because, while 
that was then a mere conjectural project, it was possible 
any day by mutual agreement among the nations to become 
a reality. An international coinage of gold is a simple 
question of equivalence of weights in the coins of different 
countries : an equivalence of values as between gold and 
silver coins for any great length of time is neither simple 
nor possible. 

(5) Residts measurable in numbers. The four preceding 
logical processes of proof and construction Political Econ- 
omy is glad to share with the other Moral Sciences, but this 
fifth and last one it has to itself alone, and this is its chief 
scientific advantage over them, and is consequently the main 



VALUE. 75 

reason why it is already more advanced and more symmet- 
rically developed than any of them. In common with them 
it has important subjective elements, such as Desires, Esti- 
mates, and Satisfactions; in marked advantage over them 
it has also objective elements, that can be weighed and 
measured and even hardened into statistics. Economics 
has an ever ready objective test, which mere mental and 
ethical and other moral processes never can have from their 
very nature. The result of each and of all economic trans- 
actions may be measured by money, and put down in a 
ledger, and published to the world in the form of statistics. 
An economic blunder, whether in legislation or in private 
action, pretty soon proves itself to be such by the lessened 
gains of somebody, and these losses can be stated arithmet- 
ically; and similarly, an economic improvement evidences 
itself at once by increased gains coming to somebody ; while 
it may take years and years to work out the results of an 
ethical mistake, and even then their amount can only be 
guessed at. 

Theories in metaphysics can only be tested by the Reason 
of men, and reasonable men without apparent bias of motive 
take opposite views of Sensations and Intuitions and Voli- 
tions ; while theories in economics, which can be even better 
tested by the Reason, have an additional and almost imme- 
diate and constantly recurring test through men's pockets 
and the tables of the Census. The people indeed some- 
times deceive themselves, and are also too often deceived 
by others, in these matters of buying and selling; but it is 
none the less of the utmost consequence to this Science, 
that all the results of good and bad practice in Economics 
work themselves at last into a definite shape, into facts and 
figures that cannot lie. It is not, as in Ethics and Meta- 
physics, that tendencies and potencies only are ascertained, 
but everything speedily drifts into results measurable in 



76 PRINCIPLES OF POLITICAL ECONOMY. 

numbers, which stand out like landmarks against the sky. 
It is just for this reason, as both the schools of the Roman 
lawyers admitted, namely, that we have in all cases the 
Return-Service as the outward expression and measure of 
the Desire and Effort of him who renders .the service, and 
because it makes no difference which of two services ex- 
changed be regarded as the return-service, that our Science 
is reared on the firm ground of objective realities, notwith- 
standing the strong subjective elements that have a constant 
part in it. 

(c) The third condition of a recognized Science is, that 
the logical processes appropriate to its class of facts have 
been already carefully applied to them and a certain num- 
ber of " exact definitions and sound principles " have been 
already " educed from and applied to " them. We do not 
hesitate a moment to claim, that this condition also is fairly 
and fully met by Political Economy, and that this is a " Sci- 
ence" under the definition from every point of view, and 
particularly from this third point of view ; and a few exam- 
ples Avill now be given as a specimen merely of the logical 
work already achieved in Economics. First, Induction 
more or less busy for two thousand years has given at last 
an exact and acceptable definition of the Science, and 
impliedly an exact description of the class of facts with 
which it is conversant, namely, the Science of Sales, or what 
is exactly equivalent, the Science of Value ; and Deduction 
at all points along this slow road has helped to correct and to 
broaden successive imperfect inductions, which an inquisi- 
tive and tentative and cautious spirit — the mainspring of 
Constructive Science — has instituted from time to time. 

Second, precisely the same processes often repeated have 
ascertained beyond question, that there are only three 
classes of Valuables and the exact differences between them, 
and that, consequently, only six cases of Value are possible 
to happen. 



VALIJE. 77 

Third, so many nations at different times in all ages have 
lowered the standard of their Money under a misapprehen- 
sion of its nature and in a vain hope of profit, and a gen- 
eral scale of rising prices following each attempt of this 
kind having been several times observed and no instance to 
the contrary, Economists came by Induction to assert the 
proposition, that falling Moneys cause rising Prices ; the 
proposition stood secure on inductive grounds alone ; but 
so soon as a perfect definition of Money, namely, a Meas- 
ure of Services, had at last been reached both inductively 
and deductively, it became at once a safe Deduction from 
the definition, that rising Prices must succeed a falling 
Measure. Thus assurance became doubly sure. 

Fourth, Introspection gives each buyer and seller such 
firm possession of his oion motive in buying and selling, 
that he naturally and inductively concludes on the ground 
that men are substantially alike, that the motive is similar 
in the party of the other part ; each further step of expe- 
rience in traffic assures him of this beyond a doubt, — each 
wants to get and does get something from the other of 
more consequence to him than what he gives ; every 
attempted deviation from rectitude in trade so far forth 
throws the trader out from opportunity to trade ; oppor- 
tunity to trade is nothing in the world but a marltet ; a 
market is nothing in the world but men with products in 
their hands, desiring to buy other products with these ; 
the more men anywhere with the more products in their 
hands of all sorts to buy with, the better market every- 
where for other men (the more the better) with other 
products of all kinds to buy with ; all the appropriate 
logical processes in action and reaction, all the commer- 
cial experience of all men everywhere, and all the true 
statistics of traffic ever gathered, do but assure the induc- 
tive assent to one of the best and broadest of all the 



78 PRINCIPLES OF POLITICAL ECONOMY. 

Generalizations in Economics, namely this : A market for 
products is products in market. 

(d) Are the definitions and principles already logically 
educed from and applied to the great class of Valuables 
orderly arranged in " a body " ? This is the only inquiry that 
remains, in order to determine whether Political Economy 
is already a " Science " in the strictest sense of that term. 
It is admitted, that a jumble of even just definitions and 
principles do not constitute a science, but only these when 
placed in a just order and interdependence. A " body " 
implies an organic arrangement of parts. It has been well 
said of the human body, that all its parts are reciprocally 
means and ends; the same may be said of ever}^ living 
organic body, whether vegetable or animal ; and the same 
may be said in the way of analogy of every developed and 
recognized Science. All the definitions and propositions 
and illustrations in any science should be so arranged, as 
to show the mutual relations and reciprocal dependence of 
all the parts, and as to display the whole in harmony and 
symmetry. 

It is as certain as anything in the future can be in science, 
that new principles will be discovered in Economics as Time 
and Inquiry go on, and tliat these will find their place 
little by little in a fuller and more rounded " body " than 
is at present possible ; while it is also as certain as any- 
thing in the future of science can be, that the Outline 
of economics is already perfectly drawn, tliat the great 
class of Valuables will never be enlarged nor be better 
described, that the category of Commodities, Services, 
Credits, is completed for all time, and that the analysis 
of each act of trade into two Desires and two Efforts and 
two Estimates and two Renderings and two Satisfactions 
will never yield additional elements. Political Economy 
is already a body of exact definitions and sound principles 



VALUE. 79 

educed from and applied to a single class of facts. This 
body will indeed be enlarged by a future and finer scienti- 
fic construction, the arrangement and interdependence of 
its parts will be better exhibited, the form and filling up 
of the Science within the outline already determined is 
sure to become more compact, more robust, and more 
beautiful, as the decades and centuries go by; while, as 
in the human body throughout all the changes of its 
growth and mature life, that future body of economic 
science in all its stages towards perfection will be but 
the continuation and fuller development of the present 
" body " of Political Economy. 



80 PEIKCIPLES ur POLITICAL ECONOMY. 



CHAPTER II. 

MATERIAL COMMODITIES. 

Valuables fall naturally and exactly into three classes, 
Commodities, Services, and Credits. The reasons are ob- 
vious at first glance, why articles falling in the first class 
occupied the thoughts and the efforts of men almost ex- 
clusively for the first thousand years of recorded history. 
Commodities appealed to the senses of men : they are 
visible, tangible, weighable. Some form of personal sla- 
very existed everywhere, and largely withdrew attention 
from personal services bought and sold ; and there was 
not apparently sufficient personal confidence between man 
and man in the earlier ages to allow much development of 
credits, whose ground is personal trust and whose sphere is 
future time. Commodities, on the other hand, fitted by 
the efforts of some men to satisfy the immediate wants of 
other men, all ready for delivery, to be exchanged against 
other commodities similarly fitted and at hand, took the 
field apparently in the earliest ages of recorded Time, 
gradually became very large in volume, opened new 
routes of travel and transportation, and served to connect 
in a rough and ready way neighboring tribes and even 
neighboring nations. 

Commodities are the class of Valuables comprising mate- 
rial things^ organic and inorganic, fitted by human efforts to 
satisfy human desires. Cattle were probably among the 
first things to become valuable, that is, salable ; and it is 



MATERIAL COMMODITIES. 81 

certain, that they became very early in many quarters of 
the world a sort of Money or standard of comparison 
among other things exchangeable, and indeed they con- 
tinue to be such in some quarters to this day. Near the 
middle of the sixth book of the Iliad occur these lines : — 

" Then did the son of Saturn take away 
The judging mind of Glaucus, when he gave 
His arms of gold away for arms of brass 
Worn by Tydides Dionied, — the worth 
Of fivescore oxen for the worth of nine." 

Gold and silver also became valuable in the ordinary 
way in very early times, and later became Money or a 
medium in exchanging other things ; and much later other 
metals came into use as commodities and then too as 
money ; for the Latin word for money, pecunia, derived 
from pecus., cattle, seems to imply some original equiva- 
lence in value between the bronze stamped with the image 
of cattle and the cattle themselves. Parcels of land sub- 
dued and improved by human hands were probably bought 
and sold in some portions of the world as early as anything 
was, — at any rate very early. Land-parcels are a com- 
modity under the definition. Another passage from 
Homer, towards the end of the seventh book of the Iliad, 
displays some of the commodities in common use during 
the heroic age in Greece : — 

" But the long-haired Greeks 
Bought for themselves their wines ; some gave their brass, 
And others shining steel ; some bought with hides, 
And some with steers, and some with slaves, and thus 
Prepared an ample banquet." 

The earliest detailed record of a commercial transaction 
in commodities, is the purchase by Abraham of the field 
and cave in Hebron, more than 2000 years before Christ. 
It is narrated at length in Genesis xxiii. Long before 



82 PRINCIPLES OF POLITICAL ECONOMY. 

this purchase, however, it is said of Abraham that he 
" went up out of Egypt very rich in cattle, in silver, and in 
gold." This formal sale to him in Hebron of the field and 
cave of Machpelah is in all its parts instructive to us, and 
full of signs of the drift of those times. It was " in the 
audietice of the sons of Heth, before all that went in at the 
gate of his cit(/, that the field and the cave were made sure 
unto him for a possession. And Abraham weighed unto 
Ephron the silver ivhich he had named in the audience of 
the sons of Ifeth, four hundred shekels of silver, current 
money tvith the 7nerchant." In the lack of written and 
recorded deeds to land-parcels, as we have them now, 
the sale of them was " made sure " before the faces of liv- 
ing men, who would tell the truth and pass on the word. 
The market-place in those days was " at the gate of the city,'''' 
where the judges also used to hold their courts, the place 
most frequented of all, and sales were made '■'- before all 
that went in''"' thither; " in the audience of the sons of Heth'''' 
was the silver weighed out, and the field made sure in 
exchange. Then there were "merchants" as a class; 
silver passed by weight rather than by tale, although it 
had already passed beyond a mere commodity and had 
become money, " current money with the merchant "; and 
even at this day the Bank of England takes in and pays out 
gold and silver by balance rather than by count, though 
they be in coined money : it is the more accurate method. 
The author of the book of Job, believed to be of great 
antiquity, and certainly true to nature and to fact in 
its essential parts, knew very well the modes in which 
the ancient mines were wrought, and the worth of the 
commodities extracted : — 

" Truly there is a vein for silver, 
And a place for gold, which men refine. 
Iron is obtained from earth. 



MATERIAL COMMODITIES. SS 

And stone is melted into copper. 

Man putteth an end to darkness ; 

He searchetli to the lowest depths 

For the stone of darkness and the shadow of death. 

From the place where they dwell they open a shaft ; 

Forgotten by the feet, 

They hang down, they swing away from men. 

The earth, out of which cometh bread, 

Is torn up underneath, as it were by fire. 

Her stones are the place of sapphires, 

And she hath clods of gold for man. 

The path thereto no bird knoweth, 

And the vulture's eye hath not seen it ; 

The fierce wild beast hath not trodden it ; 

The lion hath not passed over it. 

Man layeth his hand upon the rock; 

He upturneth mountains from their roots; 

He cleaveth out sti'eams in the rocks, 

And his eye seeth every precious thing; 

He bindeth up the streams, that they trickle not, 

And bringeth hidden things to light." 

The prophet Ezekiel, who wrote in the sixth century 
before Christ, incidentally described in his chapter xxvii 
the commerce in commodities, that then centered in the 
city of Tyre on the eastern Mediterranean. " All the ships 
of the sea with their mariners tvere in thee to traffic in thy 
merchandise : many islands were at hand to thee for trade: 
with silver^ iron, tin, and lead, they traded in thy fairs : 
they brought thee for payment horns of ivory and ebony- 
woody Among the commodities besides these exchanged 
in that market, are mentioned by the prophet horses 
and mules and lambs and rams and goats, wine of Helbon 
and white wool, fine linen and embroidered work, and 
riding cloths and mantles of blue and chests of damask 
and thread, wheat and pastry and sirup and oil and balm, 
precious spices and cassia and sweet reed, and gold and 



84 PRINCIPLES OF POLITICAL ECONOMY. 

carbuncles and corals and rubies. These old Phoenicians 
of Tyre colonized Carthage, and thus bore a vast trade in 
commodities to the West, going overland into the heart 
of Africa for dates and salt and gold-dust and slaves, and 
by sea through the Pillars of Hercules northward to the 
British Isles for the sake of the trade in tin. 

The amount of transactions in commodities, the first 
class of Valuables, has been constantly increasing, under 
natural impulses which we shall have shortly to describe, 
from the dawn of authentic History down to the present 
moment ; and figures are baffled in expressing to our 
minds the sum of these transactions even in a single coun- 
try, still more their aggregate in the commercial world. 
The foreign trade of every country is almost exclusively 
in commodities, and is only a small fraction of its domestic 
trade in the same ; and so, when we remember that the 
foreign trade of the United States, for example, under a 
commercial system designed and adapted to curtail such 
trade, amounted in 1889 to about $1,000,000,000, and the 
foreign trade by Great Britain tlie same year to about 
4,000,000,000, we gain a glim]3se, we touch as it were the 
hem of the garment, of the gigantic traffic of the world 
in commodities alone. 

The Production of Commodities is the getting them ready 
to sell and the selling them. 

1. We must look first at the Requisites of such pro- 
duction. They are three, Natural Agents., Human Efforts., 
Reserved Capital. The following lines of Whittier touch 
incidentally on these three requisites, and may serve us as 
a general introduction to them : — 

" Speed on the ship ! — But let her bear 
No merchandise of sin, 
No groaning cargo of despair 
Her roomy hold within. 



MATERIAL COMMODITIES. 85 

" No Lethean drug for Eastern lands, 
No poison-draught for ours : 
But honest fruits of toiling hands, 
And Nature's sun and showers ! " 

Natural Agents include not only " Nature's sun and show- 
ers," but also all the forces and fertilities and materials of 
free Nature, that men may and do avail themselves of in 
preparing commodities to exchange with the commodities 
of other men. Of higher rank in Production than these 
natural agencies are the Efforts of men in molding them so 
as to answer other men's Desires, of which efforts the " toiling 
hands " of the poet are a symbol. They include also the 
inventive brains and eloquent tongues and the skilful 
manipulations of every name. The poet's "ship" is an 
instance of capital, which is always a result of previous toil 
reserved to help on some future sales. These three ele- 
ments, Nature, Labor, Capital, conspire in all production of 
commodities. Nature comes first with her free forces and 
materials; and then present toil aided by the results of 
past toil in the form of capital does all the rest in get- 
ting commodities ready to sell and selling them. Let us 
now note each of these three a little more closely. 

(a) Natural Agents. The most important point about 
these is, that they are the free gifts of God, and continue so 
throughout the complications and transformations wrought 
on them and through them by Labor and Capital, until the 
material commodity of whatever kind is finally sold, and so 
passes out of the purview of our Science. Many of the 
gifts of God, like the air we breathe and the light in which 
we recreate ourselves and the water of refreshment drunk 
from spring or brook, do not connect themselves in any way 
with commodities bought and sold, and nobody ever thinks 
of them as salable at all ; but it has seemed and still seems 
to many, as if the natural fertility in a land-parcel, the 



86 PRINCIPLES OF POLITICAL ECONOMY. 

water-fall along the course of river or stream, the timber- 
growth which the hand of man planted not, the deposit of 
gold or coal in the bowels of the earth, and other such-like 
cases in which natural gifts do connect themselves with 
human services and then are sold, lifted the Value of the 
things sold above the point to which the mere human efforts, 
whether past or present, would raise it. In point of fact, 
this seeming is not a reality, as will fully appear in the 
sequel. God is a Giver, and never a Seller ; and he has ar- 
ranged it so in his great world of gifts, that, however much 
shrewd men may try to monopolize these gifts and then 
dole them out to other men for pay, they are always prac- 
tically thwarted in the attempt. God himself never takes 
pay for anything, and has never authorized anybody to 
take pay iji his behalf ; and when this role of Seller of free 
gifts, which have cost him nothing and which he has not 
improved, is taken up by any one, he is shortly crowded off 
the stage in shame by other actors true to Nature. 

This is the place for a grand induction. When we study 
in detail the free gifts of God to this world and its inhabi- 
tants, we find they come and keep coming in great classes, 
This is one of the uniformities of Nature, on whose solid 
ground men tread and stride in safe inductive reasoning. 
Can a farmer get pay in the price of his grain for the orig- 
inal fertility of his field, which neither he nor his fathers 
nor his neighbors have bettered or made more available? 
Doubtless he would be c/lad to do so, doubtless he would do 
so, were it not for the primary fact, that such fertilities as 
his are in a class of fields, that other men in more or less 
proximity to him raise grain on otlier fiehls, whose original 
fertility is equal to that in his field ; and some of these other 
men in common competition with the rest as sellers will be 
willing to part with their grain for a price wliich will be a 
fair equivalent for the onerous human services rendered 



MATEKIAL COMMODITIES. 87 

in getting their grain ready to sell and selling it ; and the 
free action of these men as sellers will tend to fix a general 
market-rate for grain then and there, at which rate all must 
sell whether they will or nill ; and where now is the effect 
on price of God's free gift ? It is still free. 

Here is a fine water-fall on the bounding river, the 
banks are low at this point, just the place for mill and 
factory, the weight of God's free water will turn the 
wheels, a hamlet v/ill grow up around them — perhaps a 
city, — can the riparian owner charge a fancy price for site 
of dam and mill ? He might under some circumstances ; 
but the same river doubtless, above, below, rolling over 
similar geological strata, leaps and falls at other points 
also ; there are other owners of mill-privileges within hail ; 
besides, there are other streams and tributaries in the 
region round about ; and water has a knack of dropping to 
the lower levels. God's gifts are broad in classes ; compe- 
tition naturally has free play ; natural agents are an essen- 
tial factor in commodities ; so and more so are human 
efforts ; but Values tend perpetually and powerfully under 
natural competition between men as sellers to proportion 
themselves to the onerous human eiJorts involved, and to 
eliminate completely from all influence on themselves the 
broad and bountiful gifts of Providence. 

What has been observed to be true in respect to two or 
three or more of the classes of God's free gifts to men, or 
in men, may almost certainly be inferred to be true of all 
such classes. Therefore, inductively, such free gifts have 
no effect on Values to lift them, their influence being elimi- 
nated by human competition. Of course, if there be unique 
cases of remarkable gifts, falling in no class, subject conse- 
quently to no competition, one cannot say coniidentl}^ 
that the free element in conjunction with the onerous 
element may not make the return-service greater than it 



88 PRINCIPLES OF POLITICAL ECONOMY. 

would be otherwise. It may, or it may not, make it greater. 
There is no living principle at work in such cases, that 
makes it certain, that the return-service will not be greater. 
Still, unique cases, if they exist, are of little or no con- 
sequence in Economics. They are most remarkably few, 
at all events. Where come in the solitary gifts, that may 
later be connected with Valuables, on the round earth as 
God fashioned it ? Gold, silver, diamonds, copper, coal, 
tin, amber, spice-shrubs, chinchona-trees, and all such 
things, have been scattered too widely and liberally for 
individuals to monopolize them, or even combinations of 
men unless they be assisted by law. Where even are 
the unique cases of God-given talent or genius in men 
themselves, such as may become connected with Valuables 
of the second class ? Daniel Webster had his competitors 
in the Court-room and in the Senate, Ben Jonson did not 
let Shakspeare have it all his own way on the stage, and 
even " Milton's starry splendor " did not make Paradise 
Lost sell well. 

We must just note here in passing the supreme im- 
portance in an economical point of view of untrammelled 
competition in the sale of commodities. It is the divinely- 
appointed means, and the only possible means, of prevent- 
ing wide-spread injustice through Monopoly. Nothing 
else in the world can be made effective to estop men from 
robbing their fellow-men through exchanges artificially 
restricted ; from charging more in the market for their 
wares than a just compensation for their own efforts ; 
from enriching themselves by impoverishing their neigh- 
bors ; from worsening the quality of their wares offered 
for sale ; and from relying upon the artificial restrictions 
put on their competitors, rather than on their own skill 
and enterprise and the goodness of their goods, for a mar- 
ket. The Common Law of England holds monopolies to 



MATERIAL COMMODITIES. ^9 

be illegal, and the reasons given (11 Coke, 84) are, first, 
because the price of the commodity will be raised ; second, 
because the quality of the commodity will not be so good 
and merchantable as it was before ; and third, because they 
are apt to throw many working people out of employment. 
It is nothing less than a crime against Civilization, than a 
sin against the clear ordinance of God, than an artificial 
obstruction to individual and national Progress, to put up 
bars and barriers by law for the purpose of cutting off 
competition, whether domestic or foreign, either by putting 
disabilities in the path of any or through monopoly tariff- 
taxes, in the buying and selling of useful commodities 
anywhere. 

(b) Human Efforts. Every way unlike the free forces 
and materials of Nature, indispensable as these are in the 
production of commodities, is the second requisite in such 
productions, namely, the onerous efforts of men. Persons 
are very different from things, from powers, from lifeless 
materials. Persons act from motives only. Minds lie 
back of bodily exertions, impelling and guiding them. 
Such efforts as are needful to mold materials into com- 
modities are only put forth in view of, and for the sake 
of, a remunerative return ; and only rational beings, acting 
under motives whose goal is in the future, capable of fore- 
sight and of adapting means to ends, can put forth such 
efforts. No degree of training can make even the most 
intelligent animals capable in any degree of that kind of 
exertion, which we call Labor ; and there is no improve- 
ment whatever in the methods of animals in reaching their 
instinctive ends, — the beaver builds his dam and the bee 
gathers and deposits the honey exactly as bees and beavers 
did ages ago. 

In the strictest sense, accordingly, there is no such thing 
as physical labor, because the mental must cooperate with 



90 PRINCIPLES OF POLITICAL ECONOMY. 

the physical even in the lowest forms of human exertion ; 
and in the same sense there can be no such thing as exclu- 
sively mental labor, for the bodily powers conspire more 
or less in the highest intellectual efforts that are ever sold. 
Nevertheless, both the phrases, physical labor and mental 
labor, are convenient and not harmful, whenever on the 
one side the bodily powers seem to be predominant in the 
effort, and on the other the intellectual. 

It is now to be noticed, that all that men can do, when 
they labor physically, is to move something. When a man 
works with his hands or his feet or his whole body, all 
that he does or can do, is to begin a series of motions or 
resistances to motion, for this good reason, human muscles 
in their very structure are capable only of starting motion 
and stopping motion. All the marvellous results of phys- 
ical effort in all the world have flowed from so simple a 
matter as the contraction and expansion of muscle ; and 
the world of materials is so cunningly constructed, that, 
when these are moved into right position by human hands, 
or by some form of capital itself the result of previous 
human handling, the free powers of Nature do all the rest, 
and valuable commodities are the good outcome. For one 
example, when the woodman fells a tree for sale, he brings 
a series of motions (lahor^ to bear upon the trunk, by 
means of his sharp axe (capitaV)^ and then the power of 
gravitation (nature^ seizes the tree and brings it crashing 
to the earth. For a second illustration, wool and cotton 
have by nature a certain tenacity of fibre, and what is 
more to the point, a certain klnkiness of fibre easily inter- 
linking one with another indefinitely in length ; men move 
these separate fibres in certain relations to each other by 
an instrument (^capital') called a spindle, and the result is 
thread ; then other men move these threads into relations 
with each other by means of an implement (^capital') called 



MATERIAL COMMODITIES. 9f 

a shuttle, and the outcome is a web of cloth ; lastly, the 
tailor moves his shears through the cloth, and then his 
needles, and the issue is a coat, a commodity, the valuable 
for which all these processes were gone through with, and 
by the sale of which all the onerous factors therein are 
compensated. 

Now, since human muscles are soon wearied in action, 
and since motion is the only thing required of men in the 
production of commodities, they naturally look around for 
outside help in this matter ; and the first help they lighted 
on for moving things was the domestic animals, the ox and 
ass and horse, doubtless domesticated in the very begin- 
nings of society; and as these can be used in so many 
different places, and for such a variety of purposes, and 
are so cheaply reared, they are exceedingly useful as a 
motive power, and will probably never be superseded as 
such. Inanimate auxiliaries in moving things into right 
position for the production of commodities, such as the 
water-wheel and wind-mill, were undoubtedly brought into 
use much later ; and much later still, steam and electricity 
and other more subtle and recondite natural agents. All 
of these helps, whether animate or inanimate, do but cause 
simple motions of the same kind as those caused by the 
human hand. The most ponderous engine merely redupli- 
cates that which the arm of a child is capable of ; while in 
point of delicacy and firmness of touch, perhaps no ma- 
chinery can subdivide and apply this motion so skilfully 
as the human fingers can. It is said that some of the lace 
made whoU};^ by hand is finer and more delicate than any 
yet woven by machinery, although the introduction of 
machinery into lace-making has cheapened lace products 
in general to a small fraction of their former cost. 

What we commonly call " Power^'' then, by whatever 
instrumentality furnished, is simple auxiliary motion, addi- 



92 PRINCIPLES OF POLITICAL ECONOMY. 

tional to that of physical human Labor. Commodities are 
produced in unlimited quantity and variety by such labor, 
assisted by the free forces of nature applied by means of 
animals and implements, which are capital. But such 
labor is irksome as well as wearisome, and is never ex- 
pended except in view of a reward, which is secured only 
from the sale of the finished commodity. 

(c) Reserved Capital. We must examine the nature of 
Capital with care, and follow its varied forms without con- 
fusion, because it is the only other factor besides labor in 
the production of commodities, that has to be paid for out 
of their sale. 

Simplest cases are always the best in economical dis- 
cussions. Let us take for illustration a recently observed 
case from the gold hills of North Carolina. All the 
methods are strongly primitive, but all the elements of 
production are present. A negro woman is the laborer, 
the bits of gold scattered in the soil are the free gift of 
nature, a bored log to divert the water from the mountain 
stream, and a tin pan in which to gather and wash the 
sand and gravel, are two crude forms of capital ; free 
gravitation also brings the water through the log, and free 
gravity carries down the particles of gold to the bottom of 
the washing-pan, and many other agencies of free nature 
cooperate in this very simple case of production ; and 
besides the log and the pan, there are doubtless some other 
forms of capital, at least the whittled plug to stop at need 
the flow of water through the log. The chief factor in 
these processes of production is still the laborer, the 
motions of her hands in stirring the sand and picking out 
the precious bits at the bottom of the pan are the chief 
motions, the labor is both physical and mental, — no ani- 
mal could be trained to adopt means to ends like this 
negro woman. 



MATERIAL COMMODITIES. 93 

It is her capital that now engages our attention. Any 
Valuable outside of inan himself reserved to assist in the 
production of further valuables is Capital. The idea of 
growth and increase inheres in the very word, which is 
derived from the Latin noun, caput., a head, a source, and 
gives intimation in its etymology of its scientific meaning. 
The word, caput., is often used in classical Latin for a sum 
of money put out at interest, and its derivative, capitale, 
is also used in the same sense, at least in mediaeval Latin ; 
and from this form of the word have come into English 
not only Capital., but also by corruption Cattle and Chat- 
tels. Flocks and herds were at one time the principal 
riches of our Saxon ancestors, and also the principal means 
of increasing their riches, and in process of time the same 
root-word came to be spelled differently as applied to ani- 
mate or inanimate things of value ; while the notion 
implied in the Latin caput., and in the English source., 
came along in all three of these words ; and hence the 
careful definition of Capital above given. 

It makes no difference whether the colored woman 
bored her own log by means of an item of capital already 
existing, namely, an auger, or hired another person to 
bore it for her, or bought the log already perforated, it 
is an article of Capital, a valuable kept to increase future 
valuables ; she might doubtless sell it for something to a 
new-comer wishing to operate other sand in the neighbor- 
hood, but she keeps it to help herself gather more gold for 
ultimate sale, she practises what we call in Economics 
abstinence and must have her reward for this in the form 
of profits from the ultimate sale of her commodity, gold, 
as well as a reward for her labor in the form of tvages from 
the same source. As one person furnishes both the labor 
and capital in this case, there is no actual division of the 
gross return into wages and profits, as there always must 



94 PRINCIPLES OF rOMTlCAL ECONOMY. 

be when so[)anitc paiLios t'uruish the two essential faetors, 
both of which must be iciamu'iated by the sale of the eoui- 
niodity. What is tlius true of tlie log, is equally true of 
the tin-i)an, and even of tlie plug also, if it be capable of 
rei)ealcd use and ct>st soniethinn' of labor and the help 
of a previous item of capital, namely, the jack-knife. Our 
negro woman of the South is a small capitalist as Avell as 
a rude la-borci', and practises abstinence as well as puts h)rth 
exertion., and consecpiently is entitled to receive profits as 
well as wiu/es in the return she gets for her gold-dust when 
she sells it. 

We are now beginning to see what the nature of Capital 
is, and what the motives are for employing it. In the pro- 
duction of commodities Capital is always something that 
makes easier to the producers the getting ready to sell and 
the selling of future commodities. The capital always 
si)ares more or less of onerous and irksome human exer- 
tion. It always mediates between some free force of 
Nature and some otherwise more onerous effort of men. 
The sole motive to employ capital in any one or in all of 
its nudtitudinous forms from the simplest to the most com- 
plex is to throw off u})on the ever-willing shoulders of 
Nature some })art of the irksome effort that would other- 
wise come to the easily-wearied nuisclcs of men. Nature is 
"cood," to use a commercial term, for all she can be made 
to carry of men's work, through imphunents devised and 
machinery contrived to apply, to connnodities in every 
stage of their transformation and transportation till the 
last, the ever-present potencies of this physical world. 
These potencies cost nothing. The implements and ma- 
chinery cost nuich in present labor and previously created 
capital. The ultimate sale of commodities must make 
retui-n for all the forms of capital employed in their pro- 
duction, in the shape of Prolits, the reward of abstinence; 



MATERIAL COMMODITIES. 95 

and for all the forms of direct labor employed in their pro- 
duction, in the shape of Wages, the reward of personal 
effort. 

The beaver gnaws down the tree with his teeth from 
generation to generation in precisely the same manner; 
but man is a being more nobly endowed than the beaver, 
and no sooner liad he occasion to fell trees, than something 
of the nature of an axe suggested itself to his ingenuity. 
It is true, that his earliest attempts at axe-making were 
probably of the rudest sort, but just as soon as anything 
was devised, whether of flint or shell or metal, that ren- 
dered easier the felling of a tree, Capital made a beginning 
along that line of obstacles. Our chief interest in studying 
the implements of the successive so-called Ages of Stone 
and Bronze and Iron, is to witness the increasing degrees of 
ingenuit}^ displayed by those pre-historic men. Among 
the more gifted races, progress in this direction was per- 
haps more rapid than we are wont to think it was, since 
Tubal-Cain, the first artificer of record, is said to have 
" hammered all kinds of implements out of copper and iron'''' 
(Gen. iv, 22).- Lucretius, writing in the century before 
the Clii'istian era, put down the following lines in vigorous 
Latin, as translated by Mason Good : — 

"Man's earliest arms were fingers, teeth, and nails, 
And stones, and fragments from the branching woods; 
Then copper next ; and last, as later traced. 
The tyrant iron." 

We are at no loss, then, to explain the origin of Capital 
and its motives. Tools are invented and employed for no 
other reason than this, that, by means of their help, the 
human efforts are lessened relatively to the given satis- 
factions. Since it requires tools to make tools, the progress 
of this branch of capital must have been relatively slow at 



96 PRINCIPLES OF POLITICAL ECONOMY. 

Hist; but, since every advance in mechanical contrivance 
makes still further advances easier, there is a natural 
tendency, which facts abundantly exemplify, to a more 
and more rapid progression in the number and perfection 
of all implements of production. The same motive that 
impelled to the first invention, has impelled to the whole 
series of inventions since, and will constantly impel to 
further inventions till the end of time. Every step of this 
progress gives birth to a larger and still larger proportion of 
satisfactions relatively to efforts; marks an increasing con- 
trol on the j)art of man over the powers of Nature ; and 
gives promise for the time to come of greater advantages 
still in both of these directions. The powers of Nature, 
such as those which make the grain grow, bring the tree 
down, turn the water-wheel, impel the locomotive, and 
send the message round the world, all stand ready to slave 
in the service of man ; but in order to make their aid 
available for human purposes, there must be a plough, an 
axe, a wheel, an engine, an electric machine ; and it is 
because capital brings gratuitous natural forces into service, 
and the more so as capital progresses, that the Value of 
those commodities produced by the aid of capital tends 
constantly to decline as compared with those commodities, 
in the production of which capital conspires less. 

It is already plain, that the class. Capital, is a smaller 
and a peculiar sub-class under the great class, Valuables ; 
nothing can become Capital until it first become a Val- 
uable, and then be capitalized by a distinct act or intention 
on the \)-A\i of the owner to reserve it in his own hands 
as an aid in further production, or transfer it to other 
hands to be so used, he meanwhile receiving profits as the 
reward of his abstinence ; only a transferahle valuable, 
accordingly, can become Capital in any case, that is to 
say, it must be either a Commodity or a Credit, since per- 



MATERIAL COMMODITIES. 97 

sonal services, though they may be sold, cannot be put 
over into the hands of another to be used in production, 
and therefore cannot become Capital in any case ; and the 
chief peculiarity of this sub-class. Capital, is, unlike the 
three great classes of Valuables, each of which is utterly 
distinct from the other two, so that a Commodity can 
never become a Credit or a personal Service either of the 
others, that Capital as a class has extremely flexible limits, 
and consequently certain Commodities and Credits may 
easily enough be Capital to-day, and fall back to-morrow 
into their respective classes of mere Valuables and the 
next day come out from the class Non-Capital into the 
class Capital again. The same commodities and credits 
may be capital at one time, and non-capital at another, 
though they must be valuable all the time, or cease to be 
commodities and credits. When it is said that a young 
man's talents and skill are his "capital," the word of 
course is used in a metaphorical sense, and the meaning is, 
that skill and talents are lihe capital in some respects. 
Popular language is not scientific. 

Cicero wrote long ago: " Optimum et in privatis familiis 
et in republica vectigal est parsimonia." Abstinence is the 
best means of revenue as ivell in private families as in the 
State. The source of Capital in a distinct act of will saving 
or sparing from present use (^parsimonia') a valuable com- 
modity or credit, and the quick nature of Capital as adding 
to itself (vectigal') in profits, are both brought out in this 
Latin maxim, which is rather an expression of an old and 
ingrained Roman sentiment than anything original with 
Cicero. It is the very nature as well as the very name of 
" Capital " to increase itself by rapid increments. It is as 
well the Stream as the Source. For example, any sum of 
money soon doubles itself when put out at compound 
interest, because the original sum increases day and night 



98 PRINCIPLES OF rOLlTICAL ECONOMY. 

until it he repaid. Tt is of the essence of every form of 
Ca[)ital to make </i'oirth, because its sole pur])ose as such is 
to become an aid to future and fiirtlier production. A 
trowel in the hands of a mast)n, whii-h is capital, })ays for 
itself every day he works with it, and perhaps ever}' hour 
of the day, in the increased production wrought by means 
of it. 'IMie wheel, which free water turns, though a costly 
imi)lemeut, repays that cost a hundred fold in the addi- 
tional bushels of wheat turned into flour through its aid as 
capital. So of all implements. So of all machinery. So of 
all means (d" transportation: shi})s, canals, railroads. 

There was a strange prejudice in ancient and mediawal 
tiimes against this natural increase of ca})ital out of its own 
l)owels, as it were, owing })robably to this dictum of 
Aristotle: ^^ For usitri/ in niofit reaxonahl// detested, as the 
inereaxe ofourfortiine an'xexfrom the nionei/ if«elj\ and not 
hji e)n/)lof/iiii/ it for (he I'lirpose for whieh it iras infe)tde>d.^^ 
]n 1ol)0, a Freni'h bishop, Nicole Oresme, repeats the error 
of Aristotle under the same rhetorical image: '"•It is mon- 
strous and •ontrari/ to Nature that a barren stock should give 
birth, that a thine/ sterile in its ivhole being should fructify 
and be multiplied from itself, and such a thing is inoneg." 
Even Shakspeare catches up the old iigure : " Is your gold 
and silver etves and ramsf'' Shy lock answers: "/ cannot 
tell; I make it breed as fast.'' In the light of the three 
requisites of Production, in the light of the purpose and 
wisdom of (lod in arranging the active forces of this 
world, the prejudice in (|uestion disa|)pears, and intel- 
ligence rejoices in the ever-increasing use of C'ai)ital as the 
handmaid of Labor, in the (piiek and sure reward of him 
who practises abstinence, in the production of conunodities 
constantly made easier and i'heai>er in all directions, in a 
scale of cond'oi'ts for the masses of men assiuvdly rising, in 
a divinely apjiointed force lifting like Christianity itself 
upon the otherwise sagging condition of mankind. 



MATERIAL COMMODITIES. 99 

Capital assumes but two economical forms, namely, 
Circulating Capital and Fixed Capital. Circulating Cap- 
ital is all those capitalized products, whether commodities or 
credits, the returns for the sale or use of which are derived 
at once and once for all. All circulating capital will be 
found in one or other of the following sub-forms : (1) raw 
materials ; (2) wages paid out in view of an ultimate 
profit ; (3) completed products on hand for sale ; and 
(4) products bought and held for the sake of resale. The 
crucial test of circulating capital is the question, Are the 
returns to be secured by the single use or single transfer of 
that particular product? Tools, for example, in the hands 
of him who has manufactured them for sale is circulating 
capital. Fixed Capital is all those capitalized products, 
which are purchased or held with a vieiv of deriving an 
income from their delayed and repeated use. All fixed 
capital will probably be found in one or other of the 
sub-forms following: (1) tools and machinery in use; 
(2) buildings used for productive purposes ; (3) permanent 
improvements in land parcels; (4) investments in aid of 
locomotion and transportation ; (5) products rented or 
retained for that purpose; and (6) the national money 
considered as a whole. 

2. We will next look at the essential Conditions of the 
production of Commodities. These are also three, as are 
the Requisites, namely, Association, Invention, Freedom. 
More or less will men make and sell to one another 
commodities in any state of society, in which there is 
permitted any considerable degree of association of men 
with men locally or commercially, in which is encouraged 
in any way the universal spirit of invention or the desire to 
get hard things done easier, and in wdiich some degree of 
liberty of action and security of property and equality of 
privileges is guaranteed; but it is very plain, that the 



100 IMMNCIlMilCS OK POLITICAL KCONOMV. 

production of (■onunodilics will iiicrciisc^ in iill dircclions and 
bccdnio the greatest in tliat ago and country when and 
where are allowed the closest ties of liunian association 
both in place and in commerce, the freest scope and largest 
rewards ol" inventive genius, and the highest possible degree 
of liberty and security and e(|ua.lity of rights. Let us 
illustrate from a state of things in the soutliern half of the 
United States during the (iist hall" of the nineteenth 
century. For the most part the land owniu's lived on 
isolated plantations widely separate from one another, these 
plantaiions were cultivated by gangs of slaves, a system 
that^ tends to bring all manual labor into contempt, the poor 
whites scattered in liandcts felt themselves above the slaves 
and beneath the masters, intercourse between the three 
classes was little, oppoitunity to bcttei' essentially their 
condition was denied to all three alike, there were but few^ 
(•ities s})rinkled owov the vast territory and these relatively 
small, the only commodity produced on a, large scale was 
raw cotton, the simple devic(^ for ginning this had been 
invented in the di^cade ])reccding by a college boy from 
Connecticut, the agricultural implements were of the rudest 
kind, even the coarse shoes for the slaves were bought 
at the North; — in short, the degree of .association and 
invention and freedom was each so low, that the production 
of commodities was exceedingly small, even as compared 
with what that production became in one quarter of a 
century after the abolition of slavery. 

(a) Asso(.uation. If we may continue for purpose of 
illustration our childhood trust in the story of De Foe, 
Robinson Crusoe came to lead a very tolerable life u[)on 
his desolate island by means of his own industry directed 
so as to satisfy his own wants by his own (efforts, lie did 
ev(>rything foi- himself, and had no o])))ortunily to buy 
anything or sell anything. The whok; course of such an 



MATERIAL COMMODITIES. 101 

isolated life could never develop the idea of Value, would 
require no such Avord as Commodities or suggest their 
production, and such a man v^hile solitary upon his island 
could not j^ossess Property in the true sense of that word. 
Association is the first main condition of Production, 
because of the natural obstacles interposed between the 
isolated man and the supply of his various wants. If any 
one man try to surmount a considerable number of these 
natural obstacles, he must miserably fail, because his 
powers are not adequate to the task ; and hence it follows, 
that, in a state of isolation, men's wants exceed their powers; 
but now let the same man devote liimself to overcome a 
single class of obstacles, for instance, those in the way of 
procuring suitable clothing, and his powers are adequate 
to this, he soon acquires skill in it, he learns to avail him- 
self of the free help of Nature and the facilitating pro- 
cesses of art, he is able to realize large products along his 
line, and is now ready to offer his surplus in exchange 
with other men, who meanwhile have been giving them- 
selves each to another class of obstacles, have concen- 
trated efforts and skill upon them, have succeeded by 
the help of Nature and art in surmounting them, and 
are now ready to offer their surplus commodities in ex- 
change for others ; and, the exchanges beginning to be 
made in all directions, men find that they thus obtain 
vastly greater satisfactions for their various desires than 
they could possibly get by direct efforts : so that we may 
even say, that, in a state of society through association, 
men's powers tend to overtake their ivants. 

Without association with his fellow-men, there is no 
creature so helpless, so unable to reach his true end, as is 
man ; and therefore it is, that the impulse to association 
is one of the strongest of our natural impulses. Men come 
together, as it were by instinct, into society; and, thus 



102 PRINCIPLES OF POLITICAL ECONOISFY. 

associating themselves together, it is soon (Uscovered, not 
only that thei'e are varions desires in the ditt'erent niem- 
hers of the coninuuhtv, whieh are now readily met by 
cooperation and nuitnal exchange, but also that there are 
very different powers in the different individuals in rela- 
tion to those obstacles which are to be surmounted. The 
tastes and ajititudes of different men arc ver}^ diverse. 
There is a great diversity in natural gifts. One man has 
[)liysieal strength, another mechanical ingenuity, a third a 
philosophical turn, and a fourth a bent and genius for 
traffic. Now, then. Nature speaks in as loud a voice as 
she can utter, in favor of such a degree of association and 
exchange as shall allow a free development of these vary- 
ing capacities, while they work upon the obstacles to the 
gratification of men's wants, which lie ai)propriately 
opposite to them. 

Men must come together either locally or commercially, 
must learn each other's wants, must comj)arc with each 
other ])Owers and tastes and opportunities, must come to 
have some confidence in each other, and then they Avill 
begin by rendering mutual services back and forth to ex- 
perience the better satisfactions and the new strength that 
exchanges bring. Whatever improves the character of 
men, and thus leads to greater confidence among them, 
will enlarge their commerce, and knit closer and wider 
tics of association and production. Neighborhood associ- 
ations and productions soon create a surplus to be ex- 
ehanged for something else with other neighborhoods; 
parts of single nations however remote from each other 
lind a relative diversity of advantage and an increasing 
profit in connecting themselves by the ties of trade ; and 
the separate nations learn, though late, that they are only 
one great family for the grand ends of production and prog- 
ress. Even within the single nation, there is a strong 



MATERIAL COMMODITIES. 103 

tendency for particular trades to localize themselves in one 
spot, as for instance, the manufacture of skin gloves has 
centered itself for the United States in Gloversville, 
N.Y. ; and so in the great cities that are centres of dis- 
tribution, for example, the wholesale grocers of St. Paul 
are on one street, the dry goods houses of Boston are in 
close proximity, and the booksellers of New York are 
tending towards each other in place. 

Now, this broad association as between persons and 
nations, instead of detracting at all from the individuality 
and power of each, is the very thing that brings out the 
individuality and intensifies the power of each ; because it 
is only thus that full scope is given to the exercise and 
development of each peculiar power whether of the indi- 
vidual or the nation. Hence the strong tendency every- 
where visible in the world of commerce towards Specialties : 
the old single trades and vocations and professions are 
constantly breaking themselves up into parts, and each 
man is taking up that for which he is naturally b6st fitted 
and has specially trained himself, and all to the great 
advantage of individuality and personal power and prog- 
ress. Mr. Carey is certainly right in his principle (much 
insisted on in all his books), that the degree of individu- 
ality depends on the degree of association, each advancing 
hand in hand with the other ; and he is as certainly wrong 
in lacking confidence in the natural forces at work tending 
to the highest degree of association and consequently to 
the highest degree of individuality. These forces are 
immensely strong. Men come together as it were by 
instinct, being conscious of individual feebleness ; personal 
interest is soon seen to follow the bent of social attrac- 
tion ; a just sense of personal dignity and importance in 
being a substantive part in the ongoings of society enor- 
mously strengthens the impulse to association and indi- 



104 PRINCIPLES OF POLITICAL ECONOMY. 

vidiiality ; the [jiogress of each and all in achievement and 
elevation still further knits the ties of union ; and lastly, 
a strong feeling of social justice, of what is due to others 
as well as to one's self, — that every man has an inalien- 
able right to his full opportunity and all that that implies, 
to buy and sell and get gain, to life and liberty and the 
pursuit of happiness. When motives and powers and 
potencies such as these, proven to be universal by broad 
and constant inductions, fail as economical forces to secure 
association and individuality, then it will be time to look 
around with Mr. Carey foi- some inferior and factitious 
force. 

(b) Invention. Tliis is the second main condition in 
the production of commodities ; because production is pro- 
cesses, getting something ready to sell and selling it ; and 
Nature stands ever ready with her free agencies to facili- 
tate these processes, just so far as the inventive brain of 
man can contrive to unite the two. Invention is the mar- 
riage of a gratuitous force to an onerous process, and the 
fruit of that union is an easier way and multiplied utilities. 
There are some in every considerable community, and 
more in every community enlarged by the natural associa- 
tion but just now described, who have the knack of con- 
trivance, who find their joy in hnding a ncAV power in 
Nature or some new application of an old jjower ; were it 
not for unhindered association and free exchange, the 
individuality of these would be effectually repressed, and 
they would have to drudge for their daily bread ; but the 
importance of inventors is well understood in every pro- 
gressive community, and under advanced exchanges their 
livelihood is guaranteed by those who hope to profit by its 
results while their work is maturing; and Production 
rejoices and grows strong and throws out unnumbered 
hands to make instant use of the new power and the easier 



MaMriAl commodities. 105 

processes, in order to multiply commodities in number and 
variety. 

As an illustration of all this, the reader will be inter- 
ested in a brief account of the series of Inventions made 
in Great Britain during the last third of the eighteenth 
century, in consequence of which the Cotton Industry was 
established in that country in such preeminence as has to 
this day baffled the attempts of all other countries even to 
approximate it. 

We catch our first glimpse of Cotton in the pages of 
Herodotus, who wrote more than 400 years B.C. in relation 
to India as follows: '•'' There are trees, which grow wild 
there, the fruit ivhereof is a wool exceeding in beauty and 
goodness that of sheep. The natives make their clothes of 
this tree-wool.'''' This passage is interesting, as showing 
that the first comparison of cotton with wool exhibited 
their resemblance in whiteness and in kinkiness, which 
latter quality enables them both to be spun into yarn ; as 
showing also, that the Hindoos very early both spun and 
wove cotton, and then made it into clothes ; and as show- 
ing lastly, the appropriateness of the original name given 
to cotton in Europe, namely, " tree-wool," a name by 
which the Germans still designate it (BaumwoUe). If 
the extreme East furnishes the first notice of cotton, the 
extreme West follows it next in order. When the Span- 
iards discovered Central and Southern America in the first 
quarter of the sixteenth century, they reported that they 
found the Mexicans clothed in cotton cloth. 

But wool was the staple of England. Parliament and 
people were jealous of cotton, lest it might prove a rival 
to wool, and actually prohibited the introduction of 
printed calicoes (so called, from Calicut in India whence 
they were exported). The taste, however, for calicoes 
increased in spite of the prohibition, which was afterwards 



lOG PKINCIPLES OF POLITICAL ECONOMY. 

intermitted for a rc\eiuio duty on plain cotton, which \\as 
then rudely printed on blocks in London, Manchester, 
and elsewhere ; but the prohibition of Parliament against 
wearing printed calicoes was lirst repealed in IToG. Fif- 
teen years later the United KingtUmi imported only 2,970,- 
610 lbs. of raw cotton, and exported only £45,986 of 
cotton goods ; in one century the import of cotton became 
600 times larger than that, and the export of cottons 1300 
times larger than that; and this prodigious result Avas due 
mainly to three or four inventions occurring within short 
times of each other, by means of which the free forces of 
nature took the place of the onerous efforts of men. 

John Hargreaves, a poor weaver in the neighborhood of 
Blackburn in Lancashire, w^as returning home from a long 
walk, in which he had been purchasing a further supply 
of yarn for his own loom. Sj)inning at that time only 
admitted of one thread spun at a time by one pair of 
hands, one of which turned the wheel and thus made the 
single spindle rapidly revolve, and the other hand pulled 
gently upon the "roving" attached to the spindle and 
thus drew it out to the requisite tenuity twisted into yarn. 
The " carding," then effected by rude instruments called 
hand-cards, by means of which the fibres of the cotton 
were disentangled and straightened and laid parallel with 
each other; and the "roving," a process by which the 
short fleecy rolls stripped off the hand-cards were applied 
to the spindle and made into thick threads only slightly 
twisted, were the two preparatory operations for the 
spinning. All these operations were slow and clumsy, 
and the consequent expensiveness of the yarn formed a 
great obstacle to the establishment of the cotton manu- 
facture in England. The improvements made in the loom 
of that period by Kay, father and son, had shortly before 
doubled the i>ower ot" each weaver, and the spinners could 
not keep up in furnishing material to the weavers. 



MATERIA T> COMMODITIES. 107 

As Hargreaves entered his cottage from this excursion 
to get yarn to keep his loom agoing, his wife, Jenny, acci- 
dentally upset the spindle, which, as was her wont, she 
was diligently using. Her husband noticed that the spin- 
dle, which was now thrown into an upright position, 
continued to revolve just as when horizontal, and that the 
thread was still spinning in his wife's hands. The idea 
immediately occurred to him, that it might be possible to 
connect a considerable number of upright spindles with 
the revolutions of one wheel, and thus multiply the power 
of each spinster. '■'•He contrived a frame in one part oj 
which he placed eight rovings in a row^ and in another pjart 
a row of eight spindles. The rovings^ when extended to the 
spindles., passed between tvjo horizontal bars of wood, forming 
a clasp which opjened and shut somewhat like a parallel ruler. 
When pressed together this clasp held the threads fast ; a 
certain portion of roving being extended from the spindles to 
the wooden clasp, the clasp was closed, and was then drawn 
along the horizontal frame to a considerable distance from 
the spindles, by which the threads were lengthened out and 
reduced to the proper tenuity; this was done with the spin- 
nerh left hand, and his right hand at the same time turned 
a wheel which caused the spindles to revolve rapidly, and 
thus the roving was spun into yarn. By returning the clasp 
to its first situation and. letting down a piercer wire the yarn 
was wound upon the spindle.'''' 

The powers of Hargreaves' machine soon became known 
among his ignorant neighbors, notwithstanding his strenu- 
ous efforts to keep his admirable invention a secret, and 
these neighbors naturally enough concluded that a con- 
trivance, which enabled one spinster to do the work of 
eight, would throw many people out of employment. A 
mob broke into his house and destroyed his machine. 
Hargreaves retired in disgust to Nottingham, where by 



108 PRINCIPLES OF POLITICAL ECONOMY. 

means of the friendly assistance of one other person he was 
enabled to take ont a })atent for his invention, which he 
called in compliment to his indnstrions wife the "• Spin- 
ning-Jennjiy This invention gave a new impnlse to the 
cotton manufactnre, bnt had it been unat'companied by 
other improvements, no purely cotton goods could have 
been made in England ; because the yarn spun by the new 
jenny, like that previously spun by hand, was not fine 
enough nor hard enough to be used as warp, and linen or 
woollen threads had consequently to be employed for that 
purpose. 

In the very year, hoAvever, in which John llargreaves. 
the poor weaver, migrated to Nottingham, Richard Ark- 
wright, a i)Oor barber's assistant, took out a patent for his 
still more celebrated machine for spinning by rollers. In 
one respect Arkwright was much worse off than Har- 
greaves : tlie latter had a helpmate meet for him, the former 
had a wife who is said to have destroyed the models her 
husband had made and to have opposed him in every step 
of his career. But Arkwright was not deterred from his 
life pursuit by the poverty of his circumstances or the 
scandalous conduct of his wife. After many years of 
intense and opposed devotion to the possible application 
of a simple principle he had conceived in his mind, namely, 
that of spinning by means of rollers revolving at varying 
rates of ra[)idity, he succeeded in contriving and patenting 
his memorable machine, which, more than any other one 
invention, localized and concentrated in England the 
gigantic cotton-industry of the world. Arkwright's idea 
and achievement was to pass the coarse thread drawn out 
from the rovings over two })airs of rollers in succession, 
the tirst of which revolving slowly lined the thread down 
evenly and gradually, and then this thread was passed over 
a second pair of rollers turning with a liigli velocity and 



MATERIAL COMMODITIES. 109 

drawing out the line into any requisite tenuity. Thus a 
cotton thread was spun capable of being used as warp. 
Cotton cloth as such could now be manufactured in 
England. 

From the circumstance that the mill, at which Ark- 
Avright's machinery was first erected, was driven by water 
power, the machine received the inappropriate name of 
the " water-frame " ; and the thread spun on these rollers 
was commonly called the " water-twist." The old mode 
of carding the cotton by hand now furnished the " rovings " 
too slowly to meet the wants of the new spinning-jenny 
and the new water-frame ; and these great inventions would 
consequently have proven comparatively useless, had not 
a more efficient and rapid process of carding the cotton 
superseded just at the right time the old system of hand- 
carding. Lewis Paul introduced revolving cylinders for 
carding the raw cotton into rovings preparatory to spin- 
ning, in partial imitation perhaps of Arkwright's principle 
of spinning the rovings by the rotatory motion of rollers. 
Paul's machine consisted " of a horizontal cylinder', covered 
in its whole circumference ivith parallel rows of cards with 
intervening spaces., and turned hy a handle. Under the 
cylinder was a concave frame, lined internally with cards 
exactly fitting the lower half of the cylinder, so that when 
the handle tvas turned, the cards of the cylinder and of the 
concave frame ivorked against each other and carded the wool. 
The cardings were of course only of the length of the cylinder, 
hut an ingenious apparatus was attached for making them 
into a perpetual carding. Each length was placed on a flat 
broad riband, which was extended between two short cylin- 
ders, and which wound upon one cylinder as it unwound 
from the other.''^ 

While the foregoing series of inventions placed an 
almost unlimited suj)ply of cotton yarn at the disposal 



110 PRINCIPLES OF POLITICAL ECONOMY. 

of the weaver, the machinery as yet introduced Avas still 
incapable of providing yarn fit for the finest grades of 
cotton cloth. The " water-frame " indeed spun abundant 
twist for warps, but it could not furnish the finest qual- 
ities of yarn, because these were too tenuous to bear safely 
the pull of the rollers while they wound themselves on the 
bobbin. Samuel Crompton, a young weaver living near 
Bolton, possessed the ingenuity needful to remove this 
difficulty. He succeeded in combining in one machine, 
which from its nature is happily called the " mule," the 
several excellences of Hargreaves' spinning-jenny and 
Arkwright's water-frame. Copying after the latter, the 
mule has a system of rollers to reduce the roving ; copy- 
ing after the former it has spindles without bobbins to 
give the twist ; and the thread is stretched and spun at 
the same time by the spindles after the rollers have ceased 
to give out the rove. '-''The distinguishing feature of the 
mule is that the spindles, instead of being stationary, as in 
both the other machines, are placed on a movable carriage 
which is 'wheeled out to the distance of fifty four or fifty-six 
inches from the roller beam, in order to stretch and twist the 
thread, and wheeled in again to ivind it on the spindles. In 
the jenny, the clasp which held the roving s ivas drawn back 
by the hand from the spindles ; in the mide, on the contrary, 
the spindles recede from the clasp, or from the roller-beam 
which acts as a clasp. The rollers of the mule draw out the 
roving much less than those of the water-frame, and they act 
like the clasp of the jenny by stopping and holding fast the 
rove, after a certain quantity has been given out, whilst the 
spindles coyitinue to recede for a short distance farther, so 
that the draught of the thread is in part made by the reced- 
ing of the spindles. By this arrangement, eomprising the 
advantages both of the roller and the spindles, the thread is 
stretched noiv gently and equably, and a much finer quality 
of yarn can therefore be produced^ 



MATERIAL COMMODITIES. Ill 

The ingenuity of Hargreaves, Arkwright, and Cromp- 
ton had been exercised to provide the weaver with yarn, 
and had now indeed provided him with more yarn than he 
could use ; the spinster had beaten the weaver, just as the 
weaver had previously beaten the spinster ; and the mak- 
ing of cotton cloth seemed likely to continue sluggish, 
because the yarn could not be woven any faster than a 
skilled workman could weave it with Kay's improved fly- 
shuttle. In the summer of 1784, a Kentish clergyman 
named Edmund Cartwright, being in conversation with 
some Manchester gentlemen, one of whom observed that, 
" as soon as Arkwright's patent expired so many mills 
would be erected and so much cotton spun that hands 
would never be found to weave it," replied, " Arkwright 
must then set his wits to work to invent a weaving-mill." 
Notwithstanding the unanimous opinion expressed by the 
Manchester gentlemen, that such a weaving-machine was 
wholly impracticable, the clergyman himself within three 
years had invented and brought into successful operation 
the ^'- poiver-loom.'''' Subsequent inventors improved the 
idea which Cartwright originated, and before 1834 there 
were not less than 100,000 power-looms at work in Great 
Britain alone. ^ 

Substantially the same machinery invented for carding 
and spinning and weaving cotton was very shortly and 
successfully applied to the carding and spinning and 
weaving of wool, because the wisdom of Nature imparted 
to them both the same sort of tenacity of fibre, the same 
capacity in that fibre to be spun into a thread of indefinite 
length by means of the little loops or kinks easily inter- 
locking contiguous fibres into a single thread, which two 
obvious resemblances gave an identical name to the animal 

1 Baines' History of the Cotton Manufacture, as condensed and quoted 
in Walpole's History of England, VoL I. 



112 PRINCIPLES OF POLITICAL ECONOMY. 

and vegetable products otherwise so different from each 
other. 

The spirit of Invention, one of the chief conditions in 
the production of material commodities, thus simply illus- 
trated along the line of a single manufacture, may serve 
us for a sample of similar improvements taken and taking- 
place in scores upon scores of other lines of effort and 
production. The principle is the same in all cases past 
and present and still to come, namely this, to throw the 
strain from the mind and muscles of men upon the forces 
and agencies of free Nature, with which the world around 
us is crowded in our behalf, and which are waiting to 
slave in the service of mankind without rest and without 
fatigue, — without money and without price. 

(c) Freedom. By far the most important of all the 
conditions, under which the production of material com- 
modities goes broadly forward, is liberty of action on the 
part of the individual ; because, wherever such liberty is 
conceded, association and invention and all other needful 
conditions follow right along by laws of natural sequence. 
By liberty of individual action is meant the practical right 
of every man to employ his own efforts for the satisfaction 
of his own wants in his own way, whether directly or 
through exchange. Each man's right of individual free- 
dom is limited of course by every other man's right to 
equal freedom, which the first man is not at liberty to 
infringe ; and also, in certain few and limited respects, by 
what is sometimes called the " general good," the judge of 
the application of which must be the government under 
which the man lives. With these limitations, which are 
few in number and never serious in degree when rightly 
applied, and which limit in common all other rights what- 
soever, the right of every man to buy and sell and get 
gain is just as fully a right as the right of breathing. It 



MATERIAL COMMODITIES. 113 

stands on the same impregnable ground. It is a natural 
and self-evident and inalienable right, with which each 
man has been endowed by his Creator, to put forth efforts 
for his own well-being and for those dependent upon him, 
either directly or by means of efforts exchanged with other 
men equally free ; and he is a slave in spirit and position, 
who tamely submits to have his own rights of buying and 
selling curtailed, or to stand by and see the rights of his 
fellow-citizens similarly curtailed, unless such act of inter- 
ference and curtailment on the part of his Government be 
justified by a solid proof that some other public or private 
rights, which are at least as well based as his own, would 
be endangered by the exercise of his own. 

In what cases may a Government properly step in to reg- 
ulate or prohibit the buying and selling of its citizens ? 
Hundreds of inductions extending through hundreds of 
years have been carefully and logically conducted in order 
to reach a just and comprehensive answer to this question ; 
and in all probability the cases have been inductively 
ascertained for all time, and they are these : such buying 
and selling may he controlled and prohibited, as are proven 
to be contrary (1) to the public Morals, (2) to the public 
Health, (3) to the public Revenue. All other buying and 
selling ma}^ be safely assumed to be both profitable to the 
parties to it, and also useful to the Commonwealth in 
general ; and any interference with it by public authority 
is a high-handed infringement of natural rights, a blow 
aimed at the life and source of property. These wrong- 
ful strokes at private rights, this restriction on the free- 
dom of individuals to exchange products for their own 
welfare, is now mostly confined in civilized countries to 
the region of Taxation. Within this region the wrongs 
are still frightful. Judge Cooley, in his " Principles of 
Constitutional Law," states the matter as follows : " Covi- 



114 PRINCIPLES OF POLITICAL ECONOMY. 

stitutionally a tax can have no other basis thayi the raising 
of revenue for public purposes ; and ivhatever governmental 
action has not this basis is tgrannical and unlauful. A tax 
on imports, therefore, the purpose of ivhich is not to raise a 
revenue, but to discourage and indirectly prohibit some par- 
ticular import for the sake of some home 7nanufacturer, may 
well be questioned as bei^ig merely colorable, and therefore 
not ivarranted by constitutional principle.'''' 

Formerly, governments interfered almost beyond belief 
with the freedom of their people in all industrial and com- 
mercial action ; dictating what should and what should not 
be grown and manufactured, what should and what should 
not be exported and imported ; decreeing by proclamation 
or enacting by statute, the number of a23prentices each 
artisan might employ, and the years during which these 
must serve as such, and the conditions under which they 
might then work as journeymen ; the materials to be used 
in woven fabrics, and even the widths and other minor 
features of such fabrics, were prescribed in the foremost of 
the European nations , in the reign of St. Louis of France, 
a " Book of Trades " was issued under royal authority and 
is still extant, which organizes minutely and subjects to 
cumbersome rules more than one hundred separate indus- 
tries as then practised ; England was the country of the 
great trading " Companies," and of all of these the same 
may be said as Adam Smith said of tlie Turkey Company 
formed in 1579, namely, it was "a strict and oppressive 
monopoly " ; among others there were the African Com- 
■pany established in 1530, the Russia Company beginning 
its operations in 1553, the East India Company chartered 
on the very last day of the seventeenth century and going 
out of existence in our own time, and the Hudson's Bay 
Company, chartered in 1670 and so having the sole control 
in trade of a region forty times larger than all England; 



MATERIAL COMMODITIES. 115 

while the colonial system prevailing for two centuries in 
all the countries of Western Europe regulated the com- 
merce and controlled the manufactures in the colonies 
with a single eye to the benefits of the mother country, as 
those were conceived of under the wretched Mercantile 
system. 

Happily, since governments have become more enlight- 
ened than formerly, they are perceiving for the most part 
that they have not the least right to interfere in those ways 
or in any ways with the natural right of their people to 
make and grow freely all material commodities, and to buy 
and sell these freely in the best markets wherever these 
markets are to be found ; and they are also perceiving, 
that by such interference incalculable losses of property 
and indefinite retardations of progress are caused to their 
people, as well as weakness to themselves as governments 
through a more difficult gathering of taxes and a harder 
maintenance of prestige and power. 

The only motive to a mutual exchange of services, 
whether in one or in all of their three kinds, that is to 
say, to a free production of commodities and services and 
credits, is always and everywhere the mutual benefit of 
the two parties exchanging. After all the processes have 
been gone through with and the exchanges are consum- 
mated, all the parties are richer than before, that is, they 
have more satisfactions, otherwise the processes and ex- 
changes would instantly cease. Therefore, a universally 
free production benefits everybody, and harms nobody. 
Moreover, under a system of free production, every man 
is allowed under the stimulus of self-interest to work away 
at those obstacles to the gratification of human desires 
which he feels himself best able to overcome, to follow the 
bent of his own mind, and to avail himself of all those 
free helps in his peculiar work which Nature offers to 



116 PKINCIPLES OF POLITICAL ECONOMY. 

him. Under these circumstances, obstacles give way in all 
directions ; the amount of material products produced is 
vastly augmented, the number and variety and excellence 
of personal services proffered are indefinitely increased, 
and credits compelling the Future to pay tribute to pro- 
duction are multiplied ; the diversified and rapidly increas- 
ing desires of all persons in such a community are readily 
met through profitable exchanges ; while all peculiar facil- 
ities natural and acquired are taken immediate advantage 
of, the diversities of relative advantage in production 
become marked in all directions, and a new day of indus- 
trial and commercial prosperity is ushered in. Because 
under freedom all men are sure to dispose of their indus- 
trial efforts to the best advantage, they have the strongest 
possible motives to put them forth; since they can purchase 
with them what they will and when they will, and where 
they will. Thus freedom leads to extended association, 
and also to the invention of machinery and all labor-saving 
appliances. 

3. We are now in position to understand thoroughly 
the ultimate Grounds of the production of material com- 
modities. We have seen, that these commodities have 
been multiplying in number and variety and excellence 
ever since the beginnings of history, that they are every- 
where multiplying now at a rate hitherto unprecedented 
and undreamed of, and that improved and improving 
methods of transportation by land and sea are now carry- 
ing these back and forth to the ends of the earth. What 
is the prhiciple^ under which these things have been done, 
are now being done, and are certain to be done in the time 
to come ? 

The physical and moral obstacles, that Nature has 
interposed to the gratification of the multitudinous and 
constantly increasing desires of men, are so great in all 



MATERIAL COMMODITIES. 117 

directions, tliat the powers of the individual man are 
utterly unable to surmount any considerable number of 
them; while at the same time, the physical and moral 
powers, adapted under sufficient motives to overcome 
these obstacles, are very diverse in the different individ- 
uals of mankind. Not only is there a surprising diversity 
in original gifts, but also the powers acquired by gradual 
concentration of personal effort upon one set of obstacles 
become exceedingly diverse, as does moreover familiarity 
in the use of the gratuitous forces of nature which lend 
their aid towards overcoming these particular obstacles. 
As the result of one or two or all of these, one man 
naturally comes to have a vast advantage over others in 
his particular branch of business, whatever that may be ,• 
each of these others by precisely the same means comes 
to have a legitimate advantage over the first in his own 
branch of effort, whatever that ma}^ be ; and if, as always 
happens practically, the first has desires which the varied 
efforts of the others can satisfy, and they too desires 
which his efforts can satisfy, nothing more is necessary to 
profitable exchanges between them than this diversity of 
relative advantage at different points. 

It is solely because a given effort irksome in itself put 
forth for another person, in view of and for the sake of a 
return-service from him, realizes more of satisfaction to 
both parties than when put forth for one's self directly, 
that commercial exchanges ever take place among men. 
The sole ground of these, the principle underlying them 
everywhere, is Diversity of Advantage between dif- 
ferent Men and between different Nations in 
different respects. All exchanges whatsoever depend 
on diversity of relative advantage in the production of 
commodities or services or credits as between the persons 
exchanging ; and this diversity of relative advantage exists 



118 PRINCIPLES OF POLITICAL ECONOMY. 

by God's appointment primarily among individual men as 
such, and only secondarily on the ground of the varied 
soil and climate and position and natural gifts of different 
parts of the earth. Reserving these secondary consid- 
erations, which are quite secondary in imjoortance also, to 
a later detailed discussion, it is very clear and of central 
consequence in our science that a diversity of relative 
advantage in different things displays itself as between 
the individuals of every community and country large and 
small. There is no hamlet in any land in which one man 
has not an advantage over his neighbors in the making of 
clothes, another in the making and setting of horse-shoes, a 
third in the building of houses, a fourth in the curing of 
diseases, and another in the keeping a school ; while each 
of those neighbors has undoubtedly some advantage or 
other over each of these in some trade or means of livelihood. 
As a natural result of this diversity any two of these 
villagers may profitably exchange their respective efforts 
with each other, provided of course each has a desire for 
the product of the other, to the manifest lessening of the 
effort of each relatively to the satisfaction of each, and 
the more so as the relative superiority of each to the other 
in his own trade is the greater. 

This point will repay some pains in minute illustration. 
If the blacksmith can make and set horse-shoes only a trifle 
better than the tailor could do this if he tried, and the tailor 
can make coats only a little better than the blacksmith 
could make one if he chose, there will be but a slight 
benefit to each in their changing works with one another. 
For the sake of definiteness, let us say, that the tailor's 
capacity for making coats is 6, and his capacity in making 
and setting horse-shoes is 5 ; and also that the blacksmith's 
capacity for shoeing horses is 6, and his ability in making 
coats is 5. Each has a relative superiority to the other 



MATERIAL COMMODITIES. 119 

of 1 in his own trade ; and if they exchange efforts, as they 
probably would under these circumstances, there is only 
an advantao-e of 2 to be divided between them. 

Now let us suppose (what might easily become a fact), 
that the tailor by exclusive and augmented attention to 
the conditions of his own craft carries up his capacity for 
making coats to 15, the blacksmith's efficiency in both the 
trades remaining the same as before. There will now be 
an increased motive to both the artisans for exchanging 
products with one another, and a larger gain to each than 
before as the result of such exchange. The diversity of 
relative advantage as between the two has now gone up 
from 2 to 11. The tailor can now make a coat much better 
and quicker than before ; and though the blacksmith owing 
to his inertness can neither make nor set horse-shoes any 
better than before, still less make coats any better, he will 
after all by still trading with the tailor reap a part of the 
benefit of the latter's increased efficiency in making coats ; 
the new coat is at once better and costs less than the 
previous one ; the tailor is still less inclined than before to 
leave his new and greater advantage over the blacksmith 
to set himself to shoeing his own horse ; even on the old 
terms the blacksmith can do that 1 better than he himself 
can, and rather than forego the trade he will naturally 
offer the blacksmith somewhat better terms than before, 
or in other words will feel impelled to share with the 
blacksmith a part of the proceeds and rewards of his own 
now superior skill and diligence. The trade began on the 
sole basis of a relative diversity of advantage as between the 
two mechanics, each in his own craft ; this relative diversit}', 
without which no exchange ever takes place between any 
two persons, has now gone up as between these two from 
2 units of advantage to 11 units of advantage ; how will 
these 11 units be divided in this case? Nobody can tell 



120 PRINCIPLES OF POLITICAL ECONOMY. 

exactly how they will be divided. Two things about it, 
however, are certain at least in their tendencies and 
potencies. The blacksmith is sure to get some part of the 
extra fruit of his neighbor's new push and spirit, while the 
tailor is sure to get as his own reward by much the larger 
part of the whole blessed 11. 

We must by no means omit to notice the logical inference 
from this instance, nor fail to make the proper inductive 
generalization from a sufficient number of similar instances. 
It is this : no man can make any essential improvement in 
any of the methods of producing material commodities, 
without at the same time benefiting other people as well 
as himself. Under natural law, which is no respecter of 
persons, he can by no possibility selfishly take to himself 
the entire fruits of his own growing skill and vigor. The 
only way in which he can gather in at all the fruits of 
these is to sell their proceeds in the open market. To 
broaden his own market for now better and more abundant 
goods he must offer them to everybody on somewhat better 
terms than formerly — and the better the terms the broader 
the market — and he can well afford to do this, because the 
goods now cost him less of irksome human effort. Every 
improvement in the production of commodities is precisely 
of that comjDlexion. The issue of every invention, of every 
improved process of every kind, is, so far forth, a cheaper 
product. And this public gain follows, must follow, indi- 
vidual enterprise at single points, even when the great 
mass of exchangers remain at the old stage of sluggish- 
ness. Whatever increases at one point even, and a fortiori 
at two points, the diversity of relative advantage as between 
any two exchangers, is of benefit to them both, and the 
greater this relative diversity becomes the greater the 
benefit to both. 

Now let us see how the matter stands, when tailor and 



MATERIAL COMMODITIES. 121 

blacksmith at the same time feel and obey the impulses 
to a more skilled and vigorous artisan life. Suppose the 
blacksmith too carries up his efhciency in his own trade to 
15, just as the tailor has done, the potency of each in the 
trick of the other remaining as before at 5 ; under these 
circumstances when the two come to trade with each other, 
each has a relative superiority over the other of 10, and 
there is an advantage of 20 points to be divided between 
the two ; the trade is now ten times more profitable to each 
than it was at the outset, when there was only an aggre- 
gate of 2 units for the division between two parties; and 
accordingly the motive to an exchange and the gain of an 
exchange as between tailor and blacksmith are ten times 
greater than they were before. Therefore we lay down the 
principle, as inductively ascertained and as universally 
applicable to all exchanges, that the greater the relative 
superiority at different points as between the parties 
exchanging, the more beneficial and profitable do the 
exchanges become to all the participators in them. If this 
principle be just, and we may well flatter ourselves that it 
will be found to be just, it follows, that every man who 
has anything to buy or sell, is directly interested in the 
highest success of his fellow-exchangers, that every trade 
finds its own advantage in the success of all other trades, 
and that all discoveries and inventions by which Nature 
is made to pay tribute to art is, restrictions apart, so much 
clear gain to the world at large. In the light of sound 
and broad principles, what David Hume called the " Jeal- 
ousy of Trade " is simply silly. 

The mainspring that impels all buyers and sellers to 
quicken their movements and to improve their methods 
and thus and otherwise to cheapen their costs of produc- 
tion, is the natural press of competition. Somebody else is 
offering tliis product, or will offer it, for less than we are 



122 PRINCIPLES OF POLITICAL ECONOMY. 

now selling it for, and we must contrive some way by short- 
ened times or cheaper processes or a quicker zeal not to be 
beaten in this market-race, is the silent argument ever 
making itself felt on the mind and hand of the producer. 
Such natural action always increases the general diversity 
of relative advantage as among buyers and sellers. 

But, on the other hand, whatever lessens or threatens to 
lessen tliis natural and most beneficial stress of competition 
among producers of similar commodities at home or abroad, 
necessarily lessens the motive on the part of these pro- 
ducers to excellence of quality in their goods and to cheap- 
ness of their cost, because it makes less the diversity of 
relative advantage as between these producers and those 
producers of other commodities against which the first 
exchange. The units of advantage that would otherwise 
be divided between the exchangers are diminished ; the 
motives to trade and the rewards of trade are thus lessened 
to each pair of parties subject to such diminution of com- 
petition, and consequently to the community, or nation, or 
family of nations, as a whole ; and accordingly this is the 
precise place for us to look into the nature and effects of 
Monopoly, so called, and to perceive once for all, that 
Monopoly is the enemy of mankind. 

Monopoly is a word derived from two Greek words, 
which mean when combined sellinq alone, that is, the j^rivi- 
lege of selling one's commodity free from the competition 
to which it is naturally subject by other sellers than the 
privileged one. Monopoly is tlius artificial restraint im- 
posed on some buyers and sellers for the supposed benefit 
of other buyers and sellers. It is wholly unnatural. It is 
usually enjoyed under the forms of law. Its beneficiaries 
commonly cajole or extort from Government by hook or 
by crook the exclusive privilege of selling certain com- 
modities in a designated market. Their motive is purely 



MATERIAL COMMODITIES. 123 

selfish : it is simply and solely to get for themselves a 
return-service artificially enhanced by selling commodities 
in a legally restricted market. The effect in the first in- 
stance usually corresponds to their expectations. The 
public are at their mercy so far as the designated com- 
modities are concerned. 

The general story of monopolies is a dreary stretch of 
record of human greed and wrong on the one hand, and 
of wide-spread poverty and suffering and slowly-gathering 
resistance on the other. We will look at only two in- 
stances at present in the long account, premising that, the 
motives of greed and grab are the same in all instances, 
and the results of wrong and hate on the part of those 
oppressed by them are the same also in all instances. 
Let Macaulay (I, 40) tell us something of the first in- 
stance selected for illustration. " But at length the Queen 
took upon herself to grant patents of monopoly hy scores. 
There was scarcely a family in the realm which did not feel 
itself aggrieved hy the oppression and extortion which this 
abuse naturally caused. Iron., oil., vinegar., coal., saltpetre., 
lead., starch., yarn., skins, leather, glass, could be bought only at 
exorbitant p)rices. The House of Commons met in an angry 
mood. It ivas in vain that a courtly minority blamed the 
Speaker for suffering the acts of the Queen's Highness to be 
called in question. The language of the discontented party 
tvas high and menacing, and was echoed by the voice of the 
whole nation. The coach of the chief Minister of the Crown 
tvas surrounded by an indignant populace, who cursed the 
monopolies, and exclaimed that the prerogative should not be 
suffered to touch the old liberties of Englajid. There seemed 
for a moment to be some danger that the long and glorious 
reign of Elisabeth would have a shameful and disastrous 
end. She, however, ivith admirable judgment and temper, 
declined the co7itest, put herself at the head of the reforming 



124 PRINCIPLES OF POLITICAL ECONOMY. 

party, redressed the grievmice, thanked the Commons in 
touching and dignified language for their tender care of the 
general tveal, brought back to herself the hearts of the people, 
and left to her successors a memorable example of the loay in 
which it behooves a rider to deal with public movements which 
he has not the means of resisting.'''' 

Perhaps some one of my readers may suggest, that 
these are the words of a Whig-Liberal, and may thus 
exaggerate the cause of the people as against the monop- 
olists. Well, then, let us hear the words of a high Tory- 
Loyalist, the historian Hume (IV, 335, 350), in relation 
to the same monopolies. " The active reign of Elizabeth 
had enabled many persons to distinguish themselves in civil 
and military emp)loyments ; and the Queen, who was not able 
from her revenue to give them any rewards proportioned to 
their services, had made use of an expedient which had been 
employed by her predecessors, but which had never been car- 
ried to such an extreme as under her administration. She 
granted her servants and courtiers patents for monopolies ; 
and those patents they sold to others, who were thereby en- 
abled to raise commodities to ivhat price they pleased, and 
ivho put invincible restraints upon all commerce, industry, 
and emulation in the arts. It is astonishing to consider the 
number and the importance of those commodities which were 
thus assigned over to patentees. Currants, salt, iron, pow- 
der, cards, calf-skins, felts, pouldavies, ox-skin-bones, train 
oil, lists of cloth, potashes, anise-seeds, vinegar, seacoals, 
steel, aquavitce, brushes, pots, bottles, saltpetre, lead, acci- 
dences, oil, calamine stone, oil of blubber, glasses, paper, 
starch, tin, sulphur, neiv drapery, dried pilchards, trans- 
portation of iron ordnance, of beer, of horn, of leather, im- 
portation of Spanish wool, of Irish yarn ; these are but a 
part of the commodities which had beem appropriated to 
monopolists. These monopolists were so exorbitant in their 



MATERIAL COMMODITIES. 125 

demands, that in soine places they 7'aised the price of salt 
from sixteen pence a bushel to fourteen or fifteen shillings. 
Such high profits naturally hegat intruders upon their com- 
merce; and in order to secure themselves against encroach- 
ments, the patentees ivere armed with high and arbitrary 
poivers from the Council, by which they were enabled to op- 
press the people at pleasure, and to exact money from such 
as they thought proper to accuse of interfering with their 
patent. The patentees of saltpetre, having the poiver of 
entering into every house, and of committing what havoc they 
pleased in stables, cellars, or tvherever they expected salt- 
petre might be gathered, commonly extorted money from 
those tvho desired to free themselves from this damage or 
trouble. And ivhile all domestic intercourse was restrained, 
lest any scope shoidd remain for industry, almost every 
species of foreign commerce was confined to exclusive Com- 
panies, who bought and sold at any price that they themselves 
thought proper to offer or exact.'''' 

" The Crovernment of E^igland during that age, however 
different in other particidars, bore in this respect some re- 
semblance to that of Turkey at present : the Sovereign pos- 
sessed every power, except that of imposing taxes ; and in 
both countries, this limitation, unsupported by other priv- 
ileges, appears rather prejudicial to the people. In Turkey, 
it obliges the Sultan to permit the extortion of the pashas and 
governors of provinces, from whom he afterwards squeezes 
presents and takes forfeitures : in England, it engaged 
the Queen to erect mo7iopolies, and grant patents for exclu- 
sive trade ; an invention so pernicious, that had she gone on 
during a tract of years at her oivn rate, England, the seat 
of riches, and arts, and commerce,' would have contained at 
present as little industry as Morocco or the coast of 
BarbaryT 

But, some one will say, Hume and Macaulay are histo- 



126 PKINCIPLES OF POLITICAL ECONOMY. 

rians, writing long after these events took place, and may- 
likely have been too favorable in their judgment to free- 
dom of trade domestic and foreign. It is indeed true, 
that both of them were firmly convinced that freedom of 
trade is an inalienable right as well as an unspeakable 
blessing to all men everywhere. So, then, let us go back 
to contemporaries. Let us hear the eye and ear witnesses 
of the grievances complained of in 1601, Robert Cecil 
was then prime minister of Queen Elizabeth. He and his 
father had had more to do in granting the monopolies than 
any other persons in the realm except the Queen. Said 
he from his place in the Commons on the 25th of Novem- 
ber: "/ say, therefore, there shall be a proclamation gen- 
eral throughout the realm, to notify Her Majesty's resolution 
in this behalf. And because you may eat your meat more 
savory than you have done, every man shall have salt as 
good and cheap as he can buy it or make, freely ^vithout 
danger of that patent which shall be presently revoked. The 
same benefit shall they have lohich have cold stomachs, both 
for aqua vitce and aqua composita and the like. And they 
that have weak stomachs, for their satisfaction, shall have 
vinegar and alegar, and the like, set at liberty. Train oil 
shall go the same ivay ; oil of blubber shall march in equal 
rank ; brushes and bottles endure the like judgment. Those 
that desire to go sprucely in their ruffs, may at less charge 
than accustomed obtain their wish ; for the patent for starch, 
which hath so much been prosecuted, shall now be repealed. 
The patents for calf-skins and felts, for leather, for cards, 
for glass, shall also be suspended, and left to the law.'''' 

Five days later one hundred and forty members of the 
House were formally received by Elizabeth in person, the 
Speaker having been instructed to convey their thanks to 
her majesty ; and, after the Speaker's address, he with the 
rest knelt down, and the Queen gave her answer as fol 



MATERIAL COMMODITIES. 127 

lows : " Mr. Speaker, you give me thanks, hut I doubt me, 1 
have more cause to thank you all, than you me : for had I 
not received a knoivledge from you, I might have fallen into 
the lap of an error, only for lach of true irformation. Since 
I was queen, yet never did I put my pen to any grant, hut 
tha,t upon pretext and semblance made unto me that it was 
both good and beneficial to the subjects in general, though a 
private profit to some of my ancient servants who had de- 
served well; but the contrary being found by experience, I 
am exceeding beholding to such subjects as would move the 
same at first. I have ever used to set the last judgment-day 
before mine eyes, and so to rule as I shall be judged to 
answer before a higher judge. To whose judgment-seat I 
do appeal, that never thought was cherished in my heart that 
tended not to my people's good. And 7iow if my kingly 
bounty hatJi been abused, and my grants turned to the hurt 
of my people, contrary to my ivill and meaning ; or if any 
in authority under me have neglected or prevented what I 
have committed to them, I hope Grod will tiot lay their culps 
and offences to my charge. Though you have had, and may 
have, many princes more mighty and wise, sitting in this 
&eat, yet you never had, or shall have, any that will he more 
carefid and loving.''"' ^ 

These were the last words of Elizabeth to the Commons 
of England. She died in a little more than a year. In a 
little less than a year before the death of her successor, the 
famous Act of Parliament of 1624 declares, that all mo- 
nopolies, grants, letters patent for the sole buying, selling, 
and making of goods and manufactures, shall be thereafter 
wholly null and void. Though this Act, and many others, 
was violated more or less in the next reign, it effectually 
secured in the long run the freedom of industry in Eng- 

1 Charles Knight's History of England, III. 292 et seq. 



128 PRINCIPLES OF POLITICAL ECONOMY. 

land ; and in the opinion of excellent authorities, has done 
more to excite the spirit of invention and industr}^, and 
to accelerate the progress of commerce in that country, 
than any other law on the statute book. 

Our second instance of Monopolies shall be drawn from 
the state of things in the United States in this year of 
Grace, 1890. The monopolies of to-day are secured by 
means of an instrument called a Tariff, which, later on in 
these pages, will be fully discussed in its history, inmost 
nature, and invariable effects. Here it will suffice to say, 
that a tariff is nothing in the world but a combination of 
Taxes, which taxes the people of the country, on which 
the tariff is imposed, are obliged to pay in one form or 
another. The only word ever uttered by a tariff, the only 
word a tariff from its own nature can utter, is. Thou shalt 
pay! The ostensible reason for levying these taxes is 
the constitutional one of getting money into the national 
Treasury, — " to pay the debts and provide for the common 
defence and general ivelfare of the United States" ; but the 
real purpose of laying these tariff-taxes at present is only 
secondarily and remotely the ostensible and constitutional 
one ; because, on the authority of Professor Taussig of 
Harvard University, there is not a single one of over 4000 
items of taxes in this tariff, that is designed primarily to 
get money into the treasury from the pockets of the peo- 
ple, but every one of them is designed more or less and 
more rather than less to raise the price of domestic goods 
to our own people artificially by keeping out of the 
country b}^ means of these taxes on them the foreign 
goods, which would otherwise come into a profit. In 
other words, there is no purely revenue-tax in our im- 
mense tariff at present, but every item in the enormous 
list is a so-called and mis-called "protective "-tax. 

By this shutting off from domestic goods the natural 



MATERIAL COMMODITIES. 129 

competition of corresponding foreign goods by means of 
such tariff-taxes, a monopoly is created at the instance and 
for the sole benefit of certain classes of privileged home- 
producers. They can sell alone (monopoly) just so far as 
other sellers are kept out by these heavy taxes. The goal 
of all their striving is to get an artificially-enhanced price 
for their own products at the cost of their countrymen 
by means of a market restricted to themselves through 
obstacles excluding foreign sellers. The end proposed by 
these shrewd manipulators is realized in fact. Domestic 
prices f re lifted on so-called " protected " goods. This is 
the first effect of the monopoly. It has often been alleged, 
and with great vehemence by the late Horace Greely, that 
competition among the domestic producers of such wares 
will lower their price again to the natural point ; but if 
this is so, what motive have the individual producers to 
work so assiduously in elections and lobbyings to get on 
and keep on these tariff-taxes? Again, Mr. Greely, and 
all others of like association, forgets the admirable gener- 
alization of Robert Stephenson, — " Where combination is 
possible, competition is impossible.^'' Combination among 
producers to keep up prices is always possible in a market 
restricted by law. This has been proven on a large scale 
in the United States during each of the past thirty years : 
combinations among coal operators to keep up the prices 
of "protected" coal by restricting the annual output of 
their collieries ; combinations among carpet and other 
woollen manufacturers to maintain high prices of their 
fabrics by restricting their workmen to certain hours per 
day or to certain months per year ; have been among the 
commonest of industrial events in all this interval. With- 
in a very few years past there has come into almost uni- 
versal vogue among these monopolists a new kind of com- 
bination called " Trusts,^'' — again abusing a good word by 



130 I'KlNCirLKS OI' rol.lTK^AL ECONOMY. 

making it cover an aboniinahlc i)nr[)Osc, — which are prob- 
ably illegal at Common Law, which only become possible 
under monstrously unjust tariff laws, and which work 
wide-spread wrong among the masses of the people. 

A second elVect of this monopoly (as of ail monopolies) 
is to worscMi the (pialily of the goods sold in an artilicially 
restrictiul marlu't. 'V\\c historian (lihbon noticed this fact 
more than a ci'ntnry ago, and said : '■'• The xpirit of monop- 
olists is tutrroir, huji ittul oppressive. Their icor/c is more 
costly and less prodiietive than, that of independent artists; 
and the netv iniproretnents so eai/ert// ijrasped hij the compe- 
tition of freedom., are admitted hi/ them with sloir and sullen 
reluctance.'" Alfred Lapoint, United States consnl in 
l^crn, warned tlu' Stati' l)i4)arlmcnt^ at Washington in 
1883 of this poor (juality of onr manufactures, which were 
then trying to iind a Sonth American market, lie wrote: 
'■'•It is nil/ dutij to indicate that i/reat carelessness prevails 
u'ith our maymfact'urers ; for instance, I ivas called upon to 
purchase in the United States a steam pump and hoilet\ 
which r ordered from one of the most J'amed manufacturers, 
and when it arrired, not alone was the boiler inadequate for 
the pump, hut actually/ after two months" work the upper tube 
sheet split in three parts, a proof of its had qualitt/ and con- 
struction."" As men arc, a: natnral I'ompetition among 
buyers and sellers is j\ist as needful to keep up tlie quality 
of goods as to kee|) down their price, (uiod quality 
always costs mor(> of t-lTort and skill and capital than bad 
(pialitv: \vh\ should produi'crs continue to fuiaiish good 
(piality to a market from which a free conqu'tition in good 
(pialities is excluded hy law? Every tendency of human 
nature, as well as every relevant iiwt, in history, attests, 
that poor wares at high rates invariably attends upon tariff- 
monoiudies. Shoddy takes the jdace of w(U)l. Cheaper 
crowds out better material. Skilled wi>rkmauship is dis- 



MATERIAL COMMODITIES. 131 

placed by unskilled. Processes of manufacture arc has- 
tened in time, and left incomplete to the damage of the 
goods in order to save capital. Monopoly is always and 
everywhere the foe of excellence. 

A third effect of tariff-monopoly is to prevent the sale 
abroad of domestic goods to the same extent and amount 
as foreign wares are kept out by these monopoly-taxes. 
This vital and fundamental result is almost always over- 
looked. If a man or a nation refuse to huy of a proffered 
customer, they cannot by any possibility sell to liim ; 
because buying and selling are reciprocal and synchronous ^ 
because it takes two to make a bargain ; because material 
commodities, for the most part, ultimately, exchange 
against each other ; and because the only motive a for- 
eigner ever has to bring his goods lather^ is to take in 
exchange for them our domestic goods at a proiit, and 
carry these hence. To forlud entrance to foreign goods is 
to forbid exit to domestic goods. Monopoly-tarilf-taxes, 
therefore, so far forth, destroy the market for home prod- 
ucts, without creating or tending to create, any other mar- 
ket for them. Such taxes, accordingly, cause a dead loss 
all around, — to the foreign producer who wants to buy 
our products with his own, to the home producer wlio 
wants to sell his own products against those, and even to 
the government also as a tax-collector, which can get no 
revenue on foreign goods excluded by monopoly-taxes. 

There is a final and deeper point of view, from which 
all such monopolies arc wholly condcmnable. Thei/ lessen 
of necessity/, — from their own nature and inexorable opera- 
tion., — THE DIVERSITY OV RELATIVE ADVANTAGE AS 
BETWEEN EXCHANGERS, on which diversity, as we have 
now seen, the whole fact and gain of exclianges d(3j)end. 
Taxes on raw materials, for example, whether actually paid 
on them or used to enhance the price of other correspond- 



132 PRINCIPLES OF POLITICAL ECONOMY. 

ing materials as in the tariff-taxes, increase the costs of all 
products into which such taxed materials enter, and so 
restrict the market of the home-producer by lessening his 
relative advantage as compared with the relative advan- 
tage of the foreigner over him. He cannot sell so well, 
perhaps cannot sell at all, his cost-enhanced products. 
Monopoly-taxes on industrial processes of any kind, on the 
means of transportation, have similar effects on the cost of 
products ; and of course, similar effects in lessening Diver- 
sity, in restricting markets, and in destroying the life of 
Trade. 

Before quitting this subject, it may be well for us briefly 
to classify Monopolies. 

(a) Patent Rights. In the great parliamentary Statute 
of 21 James I, which declared the exclusive privileges to 
use any and to sell any merchandise to be contrary to 
the ancient and fundamental laws of the realm, and all 
grants and dispensations for such monopolies to be of none 
effect, two exceptions had been made ; the first, in favor of 
Patents for fourteen years to the true and first inventors 
of new manufactures within the realm ; and the sec- 
ond, in favor of the grants by Act of Parliament to any 
Compau}^ for the enlargement of foreign Trade, of which 
the East India Company chftrtered on the last day of the 
last year of the sixteenth century became the most famous 
and the longest-lived. Open letters or letters patent, as 
they were called, giving to inventors exclusive authority to 
vend for a limited time any chattel or article of commerce, 
of which a model could be made showing the point and 
application of what was claimed to be new; and Copy- 
rights, which grant an exclusive property also for a lim- 
ited time to authors and discoverers of something new and 
useful, of which a model cannot be made, or, as it is 
phrased in the Constitution of the United States, '■'•the 



MATERIAL COMMODITIES. 133 

exclusive right to their respective writings and discoveries " ; 
are a part of the results among all English-speaking peo- 
ples of the two exceptions in this famous and beneficent 
Act of Parliament. 

In the United States a patent lasts for 17 years, and is 
not reissued except by a special act of Congress ; a copy- 
right lasts for 28 years, and may be renewed by the author, 
his widow, or children, for 14 years longer. In the consti- 
tution of the new German Empire of 1871, this protection 
of intellectual property (^der Schutz des geistigen Eigen- 
thums') is expressly included in the matters which are to 
be dealt Avith by the Reichstag or imperial parliament. 

Now while patents and copyrights are a monopoly under 
the definition, they are quite distinct in their purpose and 
spirit from the monopolies already described. On the 
whole, Society does well in trying to protect, by law, 
inventors and thinkers in the sole use and benefit of their 
respective products for a brief and specified time. There 
are large diflrculties in the way of reaching this end prac- 
tically, as is proven by the endless and expensive law- 
suits in such cases, but the postulate on which it is 
attempted is sound, namely, that otherwise citizens would 
have less motive to think and to invent ; since in that case 
only the public-spirited and the rich could or would devote 
themselves to an important branch of the public progress. 
A patent or copyright is merely a return service which 
Society renders for a service received. It violates no 
man's right of property, as an ordinary monopoly does, but 
on the other hand is a provision to protect for a time a 
new right of property created by the thought and efforts 
of a deserving class of men. The phrase, "intellectual 
property," used above in translating from the German, is 
not well chosen, since we have amply learned that any- 
thing is property that can be bought and sold, that simple 



134 PRINCIPLES OF POLITICAL ECONOMY. 

rights of many kinds are constantly on sale in the market, 
and consequently that patents and copyrights are at once 
proper and property because they are a technical return- 
service for other services ready to be rendered to the 
corhmunity. 

(b) Revenue Rights. Once at a court ball, Napoleon 
the First noticed a lady very richly dressed and wearing 
splendid diamonds, and on asking for her name, ascer- 
tained that she was the wife of a tobacco manufacturer of 
Paris ; whereupon it occurred immediately to the quick 
mind of the French ruler, that the State might just as well 
have those great profits as an individual ; and the sale of 
tobacco in all its forms became accordingly a State monop- 
oly in the interest of taxation., and so it has continued to 
this day, and yields now about 400,000,000 francs a year. 
Other nations have adopted to some small extent this 
mode of indirect taxation of their people. By legally cut- 
ting off the competition of all private dealers in the. taxed 
article, and by preventing to the utmost of their power its 
being smuggled into the country. Governments are ena- 
bled to sell the article at a price enhanced artificially by 
the monopoly; but all that the people are made to pay 
extra under the monopoly, saving the costs of maintaining 
it, goes directly into the treasury of the State ; and, so 
far forth, becomes an unobjectionable mode of taxation. 
Under all forms of taxation, the aim should clearly be, 
that the Treasury receive all that the People are made to 
pay, except the cost of an economical collection. 

(c) Tariff Monopolies. The United States has never 
undertaken, like France and Germany, to vend directly 
and exclusively an article taxed by themselves for the sole 
purpose of revenue ; but unfortunately they have under- 
taken and still maintain (1890) monopolies a thousand 
times more unjust and objectionable than any such rev- 



MATERIAL COMMODITIES. 135 

enue-monopoly can be ; they have laid distinct tariff-taxes 
upon thousands of foreign articles, not with the design of 
getting revenue from them, but with an avowed and 
realized design of preventing revenue by means of these 
taxes, since they have made the taxes so high and onerous 
as to be in many cases absolutely prohibitory of the entry 
of the goods, and in all cases more or less prohibitory of 
such entry. Revenue can only be gotten on goods that 
come in, while the very intent and result of these taxes is 
to shut the foreign goods out on which they are levied, so 
as to give certain domestic producers (who have them- 
selves secured this legislation) the monopoly of the home 
market in these goods. 

This is the very core of public wrong-doing. This is the 
worst form of monopoly that ever existed in a civilized 
country. Queen Elizabeth's monopolies, which so roused 
the ire of the Parliament of 1601, were nothing in enor- 
mity as compared with these tariff-taxes. Civilization long- 
ago sloughed off such direct grants of personal privilege 
as were forbidden forever by the Act of 1624, and accord- 
ingly there is no need of mentioning these in the present 
classification. Tariff-taxes for other ends than pure rev- 
enue are the worst monopolies in existence, because (1) 
they compel the people to pay under ostensible taxes 
many times more than the Treasury gets from them in 
actual revenue ; (2) they are wholly deceptive in their 
terms, and their operation is clothed in disguises difficult 
to strip off ; (3) they are always put on at the instance 
and under the pressure of the man (or men) who expects 
thereby to raise the price of his own wares at the expense 
of his countrymen ; <^4) they create under legal forms 
however unconstitutional privileged classes in the com- 
munity ; (5) their first effect is invariably to make the 
rich richer and the poor poorer ; (6) their ultimate effect 



136 PRINCIPLES OF POLITICAL ECONOMY. 

is to impoverish the privileged classes themselves by taking 
away from them the natural spur of comj)etition and self- 
dependence, in consequence of which their own goods 
become poor, and their zeal flags, and they come to lean 
still more heavily on monopoly-supports; (7) they destroy 
the market for domestic goods to precisely the same extent 
as they cut off the market for foreign goods, and (8) their 
whole retinue of evils is wrapped up in the great fact, that 
the Diversity of Relative Advantage is thereby diminished 
both as among domestic producers of commodities and as 
between foreign and domestic producers. 

The expression, "natural monopoly," is sometimes used 
of those, who, under freedom, and using to the utmost 
their natural gifts and acquired skill, have distanced all 
local competitors, and may be said to control the market 
in their own interest, furnishing the best goods at the 
cheapest rates. This is in no proper sense of the term a 
"monopoly." Production has no complaint to make of 
any such pre-eminence in excellence and opportunity. It 
harms nobody and benefits everybody. Exchange rejoices 
over every man and woman and child, who so puts his 
head and heart and hand into his own peculiar product as 
to outstrip all others in that one line in point of ease and 
excellence, and so be able to offer a service at once better 
and cheaper than any one else can offer it then and there ; 
and when all men and women and children, so far as they 
are employed commercially, come to possess a " natural 
monopoly " each in his own specialty, then Exchanges 
become as profitable and progressive as possible then 
and there, because the ever-blessed diversity of relative 
advantage has its utmost limit. 

4. We come now to consider the natural Limits, if any 
such there be, to the Production of material commodities. 
This point has been much discussed. For example. Dr. 



MATERIAL COMMODITIES. 137 

Chalmers, a Scotch clergyman of great intelligence, pro- 
foundly moved by the condition of the poor in Glasgow, 
published in 1822 an interesting but not over-sound treatise 
entitled " Political Economy," in which the proposition is 
maintained, that the universal market is strictly limited, 
and therefore that, were it not for the unproductive con- 
sumption of the rich and luxurious, and the equally 
unproductive consumption of national wars, there would 
soon be a general glut of material commodities, and con- 
sequently Production would have to cease for the lack of 
a vent for its products. Pretty soon we shall be able to 
detect the enormous fallacy in this proposition. On the 
other hand, in 1803, Jean-Baptiste Say, a very competent 
French economist, in chapter xv of his well-known trea- 
tise, fully developed this very important proposition, if 
true, namely, that production may go on indefinitely in all 
directions without ever a fear of reaching a general glut of 
products. 

What is a market? What is a limited market? What 
is an illimitable market? A market, as we have already 
seen in substance, is nothing in the world but certain 
persons somewhere with return-services in their hands 
desirous to part with these in order to get, that is, to buy, 
some other services offered in exchange. Each set of 
services is equally a market in relation to the other set. 
A market is always persons having something in their hands 
to sell. Buyers and sellers are equally a market in relation 
to each other. Whenever anybody goes forth to buy, he 
must of course take with him something with which to 
pay for what he wants to buy, that is to say, he must 
become a seller the very instant he becomes a buyer ; and 
whenever anybody wants to sell something, he must of 
course want something already in the hands of somebody 
else, in which to take his pay, that is, he becomes a buyer 



138 PRINCIPLES OF POLITICAL ECONOMY. 

the moment he becomes a seller. This helps us to see 
perfectly what a market is. Defined in the terms of 
persons, a market is two men, each glad to get the product of 
the other, and to render in return his own product; defined 
in the terms of things, a market for products is products in 
market. 

Now, what can limit the universal market for material 
products? Clearly, it can only be limited either in the 
element of Desires or in the element of return-Services. 
But the desires of all men, even of one man, which the 
efforts of other men may satisfy, have never yet come to a 
stand-still. Who ever heard of even one man, who was in 
possession of all the products of all kinds, that he wanted? 
Even if there were one such man somewhere, there are 
millions upon millions of other men, whose desires for 
products such as the efforts of other men can furnish are 
unlimited in number and infinite in degree. It is not 
possible, therefore, that there should be a lack of human 
desires anywhere, that could put any bound to the pro- 
duction of commodities or liinder in the least its ever- 
swelling march. 

If only two things can limit the universal market, and 
if there never has been and never can be any lack on the 
part of some men of Desires which the efforts of other 
men can satisfy through exchange, can there ever be any 
lack in the second element of a market, namely, in Return- 
services? It is not meant to be asserted, that there are 
not definite limitations at any one time or place, or in the 
whole woiid at any given period, in the capacities of men 
then and there to produce material commodities, with their 
knowledge of things and powers of invention ; but what is 
meant to be asserted is this, that wherever Production is 
most busy and universal in response to the desires of some 
men somewhere, there will be the greatest plenty of return- 



MATERIAL COMMODITIES. l39 

services, with which to pay for the services of these "some 
men somewhere " offered in response to the desires of 
the first set of producers. Therefore, no general glut of 
products is possible to occur. The more and the more 
kinds of commodities produced anywhere, the better mar- 
ket that for the more and the more kinds of commodities 
produced somewhere else. The nearer Industry may seem 
to be about to come to the goal of a limit, the farther off 
from that goal it is in reality. The aggregate of human 
industrial powers has indeed a potential limit at any one 
moment, but the knowledge of things and the power of 
invention and the means of transportation are enlarging 
every moment of time ; so that, that potential limit never 
can become an actual limitation. Human industry will go 
on enlarging and diversifying itself so long as the world 
shall stand. 

Let us put this vastly important argument in other and 
briefer words : the Desires of men which the Efforts of 
other men can satisfy through exchange are unlimited in 
number and indefinite in degree ; and therefore, mutual 
industrial efforts can continue to be put forth in exchange, 
until these unlimited and indefinite desires of all men are 
all met, — a goal which clearly never can be reached. 

This proposition demolishes at a stroke the fallacy, that 
pervades Dr. Chalmers' book but just now alluded to ; 
and, what is more to the present point, demolishes equally 
fallacies current and prevalent in the United States at this 
hour. What our national industries need and all they 
need, what they always needed and all they ever will need, 
is a quick market for their products ; products in market 
is the only market for products ; but the United States 
for 30 years past has been putting vast obstacles in the 
shape of formidable taxation in the way of the presence of 
products from abroad in our domestic market, and conse- 



140 PRINCIPLES OF POLITICAL ECONOMY. 

quently and inexorably the market for domestic products 
has been lost in foreign countries, to the immense and 
irreparable damage of domestic producers as well as to the 
foreign producers themselves. 

No general glut of exchangeable products is possible to 
take place in this world under natural liberty and just 
law, because under these the diversity of relative advan- 
tage and consequently the profitableness of commercial 
exchanges is all the time widening everywhere, tending 
to bring the whole earth into a commercial and blessed 
union. 

On the other hand, while a general glut of products is 
impossible to occur under a decent freedom, a partial glut 
in respect to certain commodities in certain places is very 
common. Through want of foresight as to a prospective 
demand, or miscalculation as to its probable amount, par- 
ticular services are sometimes offered in too great abun- 
dance or of a kind not now adapted to the chosen market, 
and in respect to these the market may truly be said to 
be glutted. This frequently happens with editions of 
books ; more copies are printed than can be sold at paying 
prices. Also, when the fashion changes, which is after 
all less capricious than is commonly supposed, the goods 
that were fashionable but are so no longer, are very apt to 
be somewhere in excess of the demand for them. Nothing 
can then hinder a partial or total loss in their value in the 
hands of their last holders. Precautions, however, may 
well be taken to avoid losses of this character, through the 
cultivation of foresight, and by studying as accurately as 
possible the nature of human desires and the not altogether 
irregular changes that have been observed to take place in 
them. This constitutes the art of mercantile sagacity ; 
and the most successful producers in all the departments 
of exchange are those who best develop .this attainable 



MATERIAL COMMODITIES. 141 

sagacity, who adapt their particular .services closest to the 
existing and to the coming demands ; who, to excellence 
in the substance of their products, add taste and attrac- 
tiveness to their form ; and who, as the result of this, tend 
rather to lead the fashions of the many than to follow in 
their wake. It cannot be wrong to repeat here in sub- 
stance, what has indeed been said already in another con- 
nection, that Production as a general rule is no dead level 
of monotonous exertion, — no going forth and coming 
back on precisely the same track, — since its sphere is 
Life with all its wants and Man with all his desires ; since 
there is scope and verge enough for the development of 
ingenious minds in almost all of its departments ; and 
since its ultimate goal is beyond the ken of man. 

5. We must now study with considerable pains the 
ultimate facts and the essential functions of Lands in 
connection with the Production of material commodities. 
This has always been the most vexed question in our 
Science ; but it is approaching, even if it has not already 
reached, a satisfactory and final solution. The present 
writer believes that his own studies and researches have 
thrown some original and important light upon the per- 
plexing problem of the Value of lands and of their prod- 
uce. His present readers are surely entitled to his clearest 
possible presentation of all the facts and principles of this 
radical question. 

The French " physiocrats " of a hundred years ago, 
founders of the first School in Political Economy, excel- 
lent men for the most part as well as good economists in 
general, thought, that lands were property in a peculiar 
and eminent sense, that they were the ultimate source of 
all values but their own, and that consequently lands 
should bear the Aveight of the national taxes. English 
economists, constituting with their followers in other coun- 



142 PRINCIPLES OF POLITICAL ECONOMY. 

tries the second School in onr Science, while not going to 
the length of the physiocrats, still maintained that the 
value of lands and of the produce of lands were distinct 
in important respects from all other values whatever. In 
our own time and country, Henry George, though belong- 
ing for the most part to the third economic School, is a 
great stickler for a single tax on lands in lieu of all other 
taxes. We must, then, concentrate all the lights we can 
gather on these points of dispute and difficulty. 

(a) The presumption in science is always against the 
existence of a feiv outlying cases^ whenever the induction 
has been long and carefully conducted by many persotis, and 
the generalization appears on all other grounds to be sound 
and comprehensive. All induction proceeds upon the pre- 
mise, that Nature is uniform in those essential resemblances 
that constitute a class of things in science. Nature has so 
often justified confidence in her essential resemblances 
even under the greatest differences in external circum- 
stance and apparent diversity, that the presumption 
becomes immensely strong in her favor, whenever a gen- 
eralization patiently gathered from many particulars seems 
to cover the whole ground concerned except a few obsti- 
nate-looking items, that have not yet been closely studied. 
Two to one these items also will presently fall into their 
predestined place. We have already seen abundant 
grounds for believing, that Values arise from human ser- 
vices rendered and received: is it at all likely, considering 
the nature of scientific generalization and the history of 
all the more advanced sciences, that in Political Economy, 
lands and their jjroduce should be found to constitute an 
outlying exception to the law of all other valuable things? 

(b) There is one vital distinction to be made at the 
outset and held to throughout the discussion, namely, that, 
between all lands as a physical thing, which God made and 



MATERIAL COMMODITIES. 143 

gave to all men in common without any effort of their 
own, and some lands now as a valuable thing, in all 
probability made such through the action of human desires 
and human efforts brought to bear upon what was merely 
physical but what has now become valuable. The failure 
to distinguish between lands as such and valuable lands as 
such, has always wrought confusion and mischief in the 
land problem. The two things are utterly different and 
incommensurable. There are vast stretches of lands on the 
surface of the earth, to which no value ever attached or 
ever will attach. They are lands, and that is all. Political 
Economy has nothing to say of them, and nothing to do 
with them. Because they are never bought or sold, 
because they never give birth to " produce," they lie wholly 
outside the field of Value. Then there are immense areas 
of lands now valuable, that were once as valueless as the 
first class. With these Political Economy has a great deal 
to do, and also with the way in which they passed from 
valueless to valuable. Then there is a third class of lands, 
that have not yet been studied as they ought and till 
recently have not been studied at all, namely, those known 
to have been valuable at one time, but which have now lost 
their value either wholly or in large measure. There are 
such lands as these in every State of our Union, and in 
every civilized country beneath the sun ; and Political 
Economy has already learned something, and is destined to 
learn much more, about the processes by which lands pass 
from out the first great class into the second, and from the 
second into the third. Valueless, Valuable, Unvalued, — 
these three words describe to the economist all the lands of 
the world. 

(c) If we may trust the simple record in Genesis, the 
whole earth was given of God to tlie whole race, under the 
direction that they " replenish and subdue it." All the lands 



Ii4 PRINCIPLES OF POLITICAL ECONOMY. " 

were then certainly valueless, although some of them were 
doubtless possessed of Utility, that is, a capacity to gratify 
human desires through a direct appropriation, which is a 
very different thing from Value, which last is the rendering 
and receiving of equivalents as between two persons. It 
seems very plain, that under this word, " Subdue," and 
under the human services implied in that, came in the 
first idea of ownership in land. When a family or tribe 
commenced the work of subjugation upon a })iece of land, 
when they enclosed it, settled on it, tilled it, in any way 
whatever improved it by their own toil, then eoidd lirst the 
idea of OAvnership dawn upon their minds, then lirst began 
that land to be capable of value, since now that family 
might reasonably say to another. If you want this field, you 
must give us an equivalent for what we have expended on 
it to improve it. If the transfer took place, what was it 
that was sold ? What was it that was paid for by the party 
of the second part ? It could not be the inherent quality 
of the soil, it could not be anything that the first family 
had gratuitously entered upon, because similar free land 
with all its inherent qualities lay open to occupation on 
every hand, and the second family Avould surely say. For 
as much effort as you have put upon your land to better it, 
we can make other free land as good as yours, consequentl}'" 
we can give you no more at the most than a fair equivalent 
for your efforts already expended. If the parcel were sold, 
therefore, the value of it must have been determined, 
not by the (jratuitous elements involved but the onerous 
elements involved. The physical thing, land, which cost 
nothing, has now become the valuable thing, land, through 
a series of human efforts expended of such kind as call 
out human desires for the results reached, and justify the 
rendering of return-services for them ; and that which the 
buyer pays for is never the free old but always the onerous 



MATERIAL COMMODITIES. 145 

new ; new utilities, that cost something, have been added 
to and intermixed with old utilities, that cost nothing; 
and solely in consequence of this expenditure of efforts on 
the part of some men, answering to the desires and calling 
out the efforts of other men, do parcels of land pass out 
from the first great class into the second great class. So 
far as it can be gathered from the nature of the case, and 
from the known steps of past experience, this is the simple 
and rational process by which valueless lands become 
valuable, and less valuable become more valuable lands. 

(d) This line of proof, strong in itself, is strengthened 
by observing how land-parcels gradually and practically 
pass out from the second into the third class of lands, — 
from the Valuable into the Unvalued. As it is only human 
Efforts wisely bestowed upon valueless lands or in some 
connection with them, that ever make these valuable, so it 
is, that these Efforts intermitted for a time, or less wisely 
bestowed, or reckoned less in harmony with the present 
and prospective desires of other men, invariably cause a 
loss of value in valuable lands; and, if such neglect or 
unwisdom of effort continue long enough, nothing is more 
certain, than that lands so treated will lose their value 
altogether, nobody will give anything for them, they will 
drop out from the second class into the third hj the same 
path (only in inverse order), by which they crept at 
first from valueless to valuable. Under the writer's own 
observation in different parts of New England, whole tiers 
of farms once valuable and productive have lost that 
character either wholly or for the most part, taxes can no 
longer be collected from them, nobody v/ill really give 
anything for them in exchange, they are abandoned of 
their former owners, they are left to lie waste or to grow 
up into forest again. It follows from all this beyond a 
doubt, and the logical issue is one of vast consequence to 



146 PKINCIPLES OF POLITICAL ECONOMY. 

mankind, that Value is no attribute of matter, no inherent 
quality of lands as such wherever situated, but it comes 
and goes, it is a relation of mutual purchase between 
human services rendered and received. 

(e) Land-parcels becoming valuable in the way but just 
now indicated, and so long as they continue valuable, that 
is, salable, are technically Commodities, according to our 
triple division of all Valuables. They belong in this 
grand division, that we are specially studying in this 
chapter, for the same reason as a horse does or a steam- 
engine does. Men did not originally make the land as a 
congeries of matter, neither do men make horses, nor do 
they make the iron ore out of Avhich most parts of the 
steam-engine is made ; but men do modify bits of the land 
as God made it, they subdue it, thej^ improve it in mani- 
fold ways, they make it desirable in the eyes of other men, 
and thus or otherwise they come into possession of it, gain 
for themselves a right to sell it, prepare it to be sold and 
sell it, on the same principle as men raise and break and 
train horses and prepare them to be sold and sell them, 
and just as men by many processes transform the iron ore 
into a steam-engine and sell that. Ricardo, in his famous 
doctrine of Rent, says a good deal about " the original and 
indestructible powers of the soil " ; but as a matter of fact, 
there are no such jjowers, since the elements and properties 
that constitute laud are all the time changing under chem- 
ical and other action ; and even if there were such powers, 
it would still be impossible to separate what God did for 
the land from what men have done in order to fit it to be 
sold ; and what men have ever been authorized to take 
pay from other men for what God did in the creation of 
the world ? The simple truth is, that Value is never of 
God's creation but only of men's exertion. 'There never 
was any land anywhere fit for cultivation and sale without 



MATERIAL COMMODITIES. 147 

more or less expenditure of human labor and reserved 
capital upon it ; and the " powers " of the land, whatever 
they are, instead of being " indestructible," are in a con- 
stant process of wearing out, and require a constant appli- 
cation of labor and capital to keep up their fertility. 
Valuable pieces of land, accordingly, like all other com- 
modities, derive their utility partly from the free contribu- 
tion of Nature, and partly from the onerous contribution 
of men ; but, on the other hand, they derive their value, 
whether the value be then increasing or diminishing, 
wholly from human desires and corresponding efforts. 

(f) It is but a step from this impregnable position to 
another, namely, that Henry George is wholly wrong in 
his view, that there is Value in lands as God made them 
and gave them to men in common ; and consequently, 
wholly wrong in his doctrine, that a single tax on land 
values would be just and equal to land owners, and might 
well be made to take the place of all other taxes on all 
other persons. He says : " If we are all here hy the equal 
permission of the Creator, we are all here with an equal title 
to the enjoyments of his bounty.''^ What bounty ? If he 
means the original utility which God put into all lands in 
common, and which certain men have done nothing to 
better, there is nobody to dispute his proposition. But he 
does not mean that, because there is nothing of any sig- 
nificance that could come out of that. What he means is, 
that it is God and not man who makes lands valuable. He 
makes no distinction between Utility and Value in lands. 
He lumps the two together in one, and calls the aggregate 
the Creator's " bounty." He goes on to say : " There is 
on earth no power which can rightfully make a grant of ex- 
clusive ownership in land.'''' Well ! Is there any power on 
earth which can rightfully deny to any man or family the 
proprietorship of his own exclusive efforts, nobody's else 



148 PEINCIPLES OF POLITICAL ECONOMY. 

rights being infringed thereby? Or can deny to him or 
them the results of such efforts, however embodied? 
When valueless lands are made valuable by human efforts 
expended to that end, does not the '"• value " belong to 
those who made it? When valuable lands have been 
made more valuable than they were by the efforts and 
foresight of their owners, the rights of others untouched, 
does not the " increment " belong to those who have cre- 
ated it? The truth is, if Henry George's powers of radical 
analysis had been at all equal to his remarkable power of 
rhetorical presentation, the world would never have been 
treated to his popular and imposing land-fallacies. Prud- 
hon's " Property is theft," and George's " Single tax on 
land," rest on the same basis of socialism. 

(g) All valuable land-parcels are material Commodities, 
made to be such by onerous human efforts of some sort 
expended upon or in some connection with the free Utilities 
furnished by Nature ; the utilities are one thing in origin 
and function, and the values are a very different thing both 
in origin and function ; and the present point is, that 
nearly all valuable lands everywhere are Capital also, that 
is to say, products reserved to aid in a further and future 
production. Capital is a relatively small class under the 
immensely large class Values. Capital is by no means 
coincident with Commodities, since vast lines of the latter 
are consumed with no reference to a further production 
by means of their use. But capital is always either 
commodities or claims, and valuable bits of land are 
always commodities and nearly always capital; because 
all tillage and pasture lands, all forests grown for wood and 
timber, and lands of all sorts rented or held for resale at a 
higher price, are capital under the deiinition, are '■^products 
reserved as an, aid to further production^ The peculiarity 
of all farming lands is this, they are themselves commodities, 



MATERIAL COMMODITIES. 149 

in whose creation God's free gifts and men's onerous labors 
have conspired; and they are held in reserve by their 
owners as capital, for the sake of producing by their means 
with the help of more of God's free gifts further valuable 
commodities, such as grain, and fruit and timber. Farms 
in their highest reach of previous culture still need for 
crops the sun and the rain. Indeed the sun is the most 
useful and powerful force in the world. Oh ! how it warms 
and lifts and quickens ! Give it and the rain and the dew 
but a fair chance on lands properly prepared for them, 
and endless fields blossom like the rose and are white to 
the harvest! 

Agriculture always has been and always will be the 
vocation of the masses of mankind. Under a fair freedom, 
and a decent law, and a reasonable industry, Agriculture 
is always profitable ; because it is natural, that is, designed 
by God for the welfare of mankind ; because it lies at the 
basis of all other industries, — most of the food of mankind, 
most of the raw material of all manufactures, most of the 
subject-matter of all national and international commerce, 
— come out of the farms of the world ; because it has been 
ordered so in the nature of things, that, under a tolerable 
freedom, a given amount of agricultural products tends 
constantly to buy, that is, to pay for, more and more of 
almost all kinds of manufactured products, for a reason to 
be explained shortly, thus tending strongly to uplift the 
farming masses in a scale of comforts ; and because there 
is no other main line of human activities so constantly 
and so prodigiously and so gratuitously assisted by Natural 
Agents as is Agriculture. As Milton has profoundly 
expressed it in the "Hymn to the Nativity," the Sun is 
indeed to Mother Earth "Aer lusty paramour.'''' But at 
this very time of writing a wail is coming up in ever 
deepening tones from Italy and France and Germany and 



150 PRINCIPLES OF POLITICAL ECONOMY. 

Russia and especially the United States, that a colossal ' 
blunder in legislation common to all these countries now, 
say rather a colossal crime of the powerful few against the 
humble many, in the shape of tariff-monopolies, neutralizes 
in large part these natural advantages of agriculture, 
makes farming unprofitable and farmers unable to pay 
their taxes, diverts young men in increasing numbers from 
the farms to the towns, plasters the lands over with 
mortgages, shuts out from their natural markets the 
products of the land, thus depressing their price, and shuts 
off from farmers by outrageous taxes their natural supplies, 
thus augmenting their price. Farmers in all these countries 
are revolving between the upper and the nether millstones. 
Count Giusso, ex-Mayor of Naples, and now a deputy from 
that city, has just made a speech in the Italian Parliament, 
which sets forth in strong terms the great depression 
in Agriculture, and the critical condition of the public 
finances, brought about by the new policy of protectionism 
there. He says : " The Utopian idea of creating an 
industrial Italy on the ruins of an agricultural Italy^ has 
been a colossal error big with disastrous residts. We have 
preferred the shop to the land ; we have preferred the coal 
we do not possess to our Italian sun ; we have preferred the 
motive force of steam to the most powerful motive force in 
the universe, the sun; and we are naturally stiff ering the 
sad consequences^ Exports increased in Italy in 1888 by 
•124,000,000, and imports by $42,000,000 ; and the Count 
quotes the cry coming up from one end of the Peninsula 
to the other : " G-ive us the ineans of selling our products, 
and we ivill pay the taxes.'''' England is the only consider- 
able country in the world, whose customs-revenue increased 
in the fiscal year 1888-89 over the year before ; this English 
increase was over 5 per centum^ which means an increase 
both in imports and exports, whose movements are almost 



MATERIAL COMMODITIES. 151 

absolutely free so far as England is concerned; while in 
all the countries mentioned above, which are under a 
different system in that respect, there was a deficit of 
revenue from tariff-taxes as compared with the year before, 
and a decrease in both exports and imports. 

(h) If nearly all bits of valuable lands be capital, as we 
have just seen strong grounds for believing, then it follows 
of course, that the Re^it of leased lands lohether for buildings 
or hai'vests is the same in nature with the Interest on money 
loaned^ and is the measure of the service rendered hy the 
owners to the actual users of the Capital. This proposition, 
seen in its radical proofs and in its logical corollaries, takes 
the very life out of Henry George's land-theories, and out 
of the popular remedies thereto annexed. The writer 
firmly believes also, that this proposition in the grounds of 
it and in the inferences from it might have been used by 
Mr. Gladstone and his followers with telling effect in the 
animated discussions of the Irish land-question in the Brit- 
ish Parliament during the decade 1880-90. In the debates 
on the Irish Land Bill passed in 1881, the representatives 
of the land-owners in Ireland held to their right to take 
all the rent they could extort by the help of the law ; on 
the other hand the representatives of the Irish rent-payers 
held to their right as cultivators and maintainers to with- 
hold rent in large part or altogether ; and Mr. Gladstone, 
as representative of the nation, while insisting on the 
right of the owners to certain rents, insisted equally on 
the right of the cultivators to certain important privileges 
in- the soil. Our present proposition with those that 
spring out of it, though it was not used by Gladstone, as 
it might well have been to smooth his pathway through 
the roughness of that legislation, yet justifies at one and 
the same time the discontent of the Irish rent-payer, the 
claim of the Irish land-holder to an assured rent of some 



152 PRINCIPLES OF POLITICAL ECONOMY. 

sort, and the fundamental principle of the Irish Land Bill 
of 1881. That bill gives a certain modified ownership and 
control to the actual cultivators and maintainers of the 
soil. That is right. 

The principle of land-values herewith enunciated, their 
uprise and increase and frequent decay also in all land- 
parcels, justifies completely the concessions to tenants in 
that bill ; wliile the old and still commonly acce23ted 
English principles of land, and the false yet famous doc- 
trine of Rent promulgated by Ricardo at the beginning of 
the century, are wholly against Gladstone and his conces- 
sions in that bill. Let us now see whither simple analysis 
and logical processes will quickly bring us in this whole 
matter. Valuable land was once valueless, and always 
remained so, until, by virtue of human efforts expended 
upon it or in some direct connection with it, coupled with 
the desires of certain other men for that land or its prod- 
uce, accompanied with a readiness on the part of these 
men to render some equivalent for it or its use, first 
imparted value to that particular patch ; moreover, it has 
been found in practice ten thousand times, just as one 
would expect, knowing the origin of value in general, 
that, unless human efforts are further and constantly 
expended on or in connection with that piece, and unless 
desires of other men continue to turn towards it in the 
way of exchange, its value will silently and inevitably 
escape from it; therefore, whoever has come into posses- 
sion of that valuable piece of land by purchase or in- 
heritance, and foregoes the use of it in favor of another 
as a tenant, is morally and commercially entitled to the 
stipulated return for that use, which is rent ; but also, if 
that other, aside from the current use which is always a 
wearing-out process, contributes in any way to the contin- 
uance and increase of the value and fertility of the land. 



MATERIAL COMMODITIES. 15S 

then and so far he gains rights in the land and becomes a 
sort of joint owner of it, since what he has done in tlie way 
of maintenance and improvement is inextricably mingled 
with what the other owners or users have done, and is of 
the same nature with that; and, therefore, the modified 
ownership of certain tenants recognized in Gladstone's bill 
is in strict accordance with ultimate justice, as it is also 
in strict accord with right, that the legal owner should 
continue to receive a return in the shape of rent for all 
the fertility and opportunity actually contributed by him, 
and no more. The discontent of the Irish peasantry has 
largely come from an instinct or intelligence more unerr- 
ing than the economics of the land-owners, namely, that 
they are called on to pay rent for what they themselves 
have contributed in addition to the rent for what they have 
received. The true origin of value in land, and the only 
way in which value in land is kept up, seems to have 
penetrated deeper into the minds of Irish tenants than into 
the minds of many British statesmen. 

(i) If the bulk of all valuable land-parcels be capital, 
as it is, then one might expect beforehand to find a law of 
diminishing returns from such lands, agricultural labor 
and skill remaining the same ; because, all capital is tools 
made such by the expenditure of human efforts on change- 
able material, and then by the practice of abstinence^ and 
tools from their very nature are always wearing out. 
Increase of efforts in connection with any form of capital 
unimproved by new inventions and uninvigorated by fresh 
skill, though they may indeed increase the aggregate 
return, cannot, for the reason just given, secure an increase 
proportioned to the increase of the efforts. The English 
writei'S generally, and Mr. Ricardo in particular, justly lay 
much stress on this proposition, although they have not 
taken lands to be capital, and have proven the law of 



154 PRINCIPLES OF POLITICAL ECONOMY. 

diminishing returns in a different way from ours, and con- 
sequently have not set the propositions of hind in their 
best and most ultimate relations. Their method of prov- 
ing the law, however, is short and conclusive : If by doub- 
ling the efforts upon a piece of land, double the produce 
could be secured, and by quadrupling it, quadruple, and 
so on, there would be no reason why any man should ever 
cultivate more than a square acre, or even a square rod. 
He has a strong motive to confine his culture to a small 
space, just so long as the amount of produce is in the ratio 
of the efforts expended, because there is less locomotion of 
tools and fertilizers and crops. The fact that he extends 
his culture from one acre to another, and then to distant 
acres, notwithstanding the inconvenience and expense of 
transportation, is an irrefragable proof of the proposition 
in question. Increase of agricultural efforts and expendi- 
tures on a given space of land will secure a larger amount 
of produce, but as a general law, the increased amount will 
not he pi'oportioned to the increased expenditure. 

It is through this law of diminishing returns, that the 
Creator has secured the gradual occupation, by men, of 
almost the whole earth. There is a strong and natural 
tendency to leave the old acres to advance upon new, the 
old countries to emigrate to new, whenever the returns 
begin to bear a more unfavorable ratio to the labors 
bestowed. The farmer will advance from the first to the 
second acre as soon as he tliinks that more produce can be 
obtained from it by a given amount of efforts than can be 
gotten by a like expenditure of additional efforts upon the 
first acre, allowance being made for the increased incon- 
venience ; and so, cultivation has gradually extended itself 
and men have become dispersed over the whole earth. 
Other principles leading to dispersion have undoubtedly 
co-operated, but this is the fundamental one, operative at 



MATERIAL COMMODITIES. 155 

all times, changing the course of population, and conse- 
quently of- empire. 

(j) It follows from the points already made, tliat all 
permanent improvements in agriculture retard the operation 
of the law of diminishing returns. The recent introduction 
of the silo, for example, upon the long-used and wearing- 
out farms of New England promises, if the public law 
would quit throwing in obstacles, to help restore the fer- 
tility of many of them. The discovery of new and more 
available fertilizers, the invention of better agricultural 
implements, the light thrown by chemistry upon agricul- 
ture, the consequent adoption of better methods of culture 
and rotation of crops, the more perfect adaptation to the 
various soils of the kinds of produce sought to be raised 
from them, — all these and similar improvements tend to 
increase the ratio of produce to the labor, and to disguise 
the law just established. The lands that are now under 
cultivation may be made, under more skilful modes of 
culture to yield indefinitely more than at present, and the 
vast still uncultivated lands of the world may come to 
render an incalculable quantity of food to the world's 
population; but yet, as improvements are naturally less 
continuous in this than in most other departments of pro- 
duction, as invention has much less play, as there is less 
opportunity for the division and co-operation of laborers, 
as nothing can materially shorten the time during ivhich the 
fruits of the earth must ripen., it is certain that possible 
improvements will never override the law of diminishing 
returns ; and, consequently, that the value of agricultural 
produce teyids constantly to rise relatively to manufactured 
products generally. 

(k) The last point to be made under the general topic 
we are now discussing, is, that the best tenure of lands in 
the interest of the production of material commodities is the 



156 PBINOIPLES OK rOLlTICAI. ECONOMY. 

fee siiitple in the hands of the actual niltivatorx. 'I'liis is 
the old Toutonio lioldiiig; but special cin-mustanoes in 
the IJritish Islands have gradiiiilly changed these small 
holdings once cultivated by the hands of their free owners 
into hirge estates, the parts of which are leased out at will 
or for a term of years to tenants or " farmers " as they are 
t her(^ called, who, in tnrn, being small capitalists, as the 
land-owners are large capitalists, furnish the stock and hire 
the laborers and thus become the actual cultivators, and 
even often sublet pai'ts of their own leased holdings to 
tenants of tlu^ ncxt^ di'grci^ below, who can furnish less 
stock and can hire fewer laborers. The word '* farmer" as 
used in the United States has a. (piitc different meaning 
from that it bears in (ireat l>rilain ; it- nieaiis hi're a, man 
cultivating his own liclds with his own funds in his own 
way, and it means there a man cnltivating another's fields 
with his own funds in a way and on terms made a matter 
of contract between the two ; and these two modes of 
culture are so distinct that they are not likely to lie 
alongside of eaxdi other to any great extent for a very long 
time in tbe same country. Since her great Revolution, 
and luidcr the action of the law requiring the equal 
partition of I'very man's landi'd estate among all his 
children, Fi-ance has had for the most pail the small holding 
tilled by the ow^nor's own hands, instead of the gi'cat estates 
of the old re(/i'iin\ the average being about 14 acres to each 
owner, and nearly one fourth of the entire [topulation 
being pro[)rietors of land either in town or country; in the 
United States tlu^ plough is guided almost wholly by tlu^ 
man who owns the soil he tills; while in (Ji-eat Britain the 
original peasant })roprictm- has almost entiri'ly disappeared. 
Each system has its advocates and arguments. 

The question at bottom is, ^\hether ea]tital in tlu' form of 
tillable land is more effective when held in large masses 



MATERIAL COMMODITIES. 157 

and loaned out to men, wlio possess small capitals in 
another form than land, and are willino- to apply these for 
a return upon that land, or when lield in small masses and 
used as capital by the owners theniselves, who also own 
some capital in another form than land and are willing to 
apply this to their own profit upon tlieir land. We hold, 
that the latter method is better than the former, both for 
the maintenance and improvement of the land itself as 
capital and also for the current production of commodities 
from it, because, (1) when one owns the farm he works, 
from the very nature of permanent ownership he takes a 
greater interest in it, perhaps he has inherited it from his 
fathers, perhaps he has bought it and paid for it at the 
hardest, at any rate it is his own, and as all men work fioni 
motives and tlie energy of the work is proportioned to the 
constant press of the motives, then must the owner of 
the eapital, whose abstinence 'ttuihcH it esipital, be under 
the strongest possible motive at once to improve his capital 
and also to make the current prodiujc from it as grciat as 
possible, since the capital itself and all it yields is his own; 
moreover, (2) ownership improves the moral eharacter of 
the cultivators, it tends to make them industrious, thrifty, 
frugal, independent, hopeful of the future, anxious to give 
their children better privileges than they themselves had, 
and it would seem as if the masses of men are educated by 
nothing so much, at least by nothing more, as and than by 
the ownerxhl'/j of land, wherever such tenure is possi])le and 
easy to the masses; and (3) tlie outward testimony is 
abundant from many lands, that the peasant proprietor is 
a hiippiei- iuid more virtuous man, a more })roductive and 
progressive one, than the mere tenant and farm-laborer, 
while there is much ])erliaps less conclusive testimony that 
leased lands are iiifeiior in point of improvements and 
productiveness to the same lands wben cultivated by their 



158 PRINCIPLES OF POLITICAL ECONOMY. 

owners and to contiguous or at least similar lands still so 
cultivated. 

It is a cognate point yet worthy of separate mention, 
that a general division of lands into farms only moderately 
large and approximately equal is most favorable to the 
largest aggregate production. Such a division takes place 
of itself wherever the lands are held in fee simple, and the 
cost of land-transfers is slight, and there are no such 
obstacles as slavery or primogeniture, as has happened 
practically in New England and in the ^Middle and Western 
States, and as is now happening of its own accord more or 
less at the South. The Greek writer. Aristotle, quoted 
some centuries before Christ from " the African." probably 
some Carthaginian writer on agriculture, the now familiar 
saying, " the best manure for the land is the foot of the owner.'" 
This homely word long attributed to Dr. Franklin, who 
stole it for his " Poor Richard's Almanack " more than a 
century ago, is based on the sound principle, that personal 
supervision to be most effective must be limited in its 
sphere, and that the best agricultural skill becomes weak 
when it attempts to exhibit itself on too broad a surface. 
Because a man can cultivate 100 acres better than any of 
his neighbors, it does not prove that he will cultivate 
50 acres additional to them better than a neighbor of 
inferior skill, who is the owner of these 50 and no more. 
When the freeholds are small and nearly equal a wide 
competition among the farmers comes naturally into 
play, success is seen to depend upon personal efforts of 
intelligence and will, and interest and hope become the 
motives to the most productive cultivation. There is a 
high pleasure in possession and in self-guided exertion, and 
an impulse is broadly 'felt over the whole region to get as 
much as possible out of the land and at the same time to 
keep good and ever improve its condition. To protect and 



MATERIAL COMMODITIES. 159 

advance his own interests, to attend upon the seasons, to 
watch and wait, to foresee and plan and labor, — all this 
develops the farmer, and gives him energy and inde- 
pendence ; and wherever there Ls a broad basis of such 
independent yeomanry to lean back upon, when heavy 
taxes are to be raised and strong blows of battle are to be 
struck, the national safety and position are assured. 

G. We come now in the last place to consider the Cost^ 
of Production of material commodities of all sorts. Valu- 
able patches of land, all prepared for Production in its 
several kinds, are the most important Commodities in the 
world, and the largest also in volume of Value. What did 
it cost " to subdue " the present tillable lands of this coun- 
try? How much did it cost to get ready for grazing the 
broad pastures ? To make accessible the forests that yield 
the timber? To open up the mines also and bring them 
into "touch" with the population? These questions are 
of great consequence, not that the actual past cost of any 
class of these more permanent " commodities " in the com- 
mercial world will be any safe guide to their present value, 
since cheaper and cheaper means of subduing the rugged 
forms of Nature are all the while coming into play, and all 
things that did cost more once tend pitilessly to fall to 
what similar things cost now ; and since also it is never 
" efforts " alone that determine the value of anything, but 
efforts in conjunction with the " desires " of other men. 
Still, the amount of efforts expended at any given time 
upon these more stable commodities to make them produc- 
tive, that is, their cost of production, is always gauged in 
general by an eatimate of what the " desires " for them will 
be when completed ; and this makes their cost of produc- 
tion a sort of loose measure of their value at the time. 
The main reason, however, why the cost of production of 
these primal commodities, namely, valuable land-patches, 



160 PKINGIPLES OF POLITICAL ECONOMY. 

whatever may bo expected to be produced from them after- 
wards, is so importiiiit, is, that as a general rule, the less 
the cost of any commodity meeting a universal want the 
wider and surer is its market. The larger the circle of the 
buyers of anything the more certain its sale ; because, the 
woild over, the men of small incomes arc m'anifold larger 
in number than the men of large incomes. Society is like 
a pyramid : the lowest course of masonry is the longest 
and widest, — has the most stones or bricks in it, — and 
ever fewer towards the top. 

If we reckon valuable lands as the primary commodities, 
then the secondary commodities will be of two classes, 
namely, (1) the produee of these valuable lands, whether 
animal or vegetable or mineral, such as cattle and cereals 
and coal ; and (2) vendible material products obtained by 
human efforts from non-valuable land and sea, such as furs 
and fish. This division of material commodities into 
primary and secondary, and the distinction among second- 
ary connnodities according as their source is costly and cost- 
less, has never before been drawn in Political Economy ; 
and it is full}^ believed, that the thoughtful reader and 
student wdl pretty soon perceive its iid vantages in hel[)i ng 
clear up one of the most confused and perplexing sections 
of our Science, namely, that which relates to the causes 
and measures of Rent. We are now to inquire into the 
elements of the cost of production of each of these three 
classes of commodities ; and we may find ourselves sur- 
prised at the sim})licity and certainty of these elements. 

1. We will now look into the Cost of Production of 
valuable land-patches themselves, the first and most impor- 
tant class of commodities. Here, as everywhere else in 
Valuables, we discover certain free gifts of Nature, with- 
out whose presence indeed the value could never come 
into being, but Avhich are not constituents of the value, be- 



MATERIAL COMMODITIES. 161 

cause they are gratuitous, given of God, and because the 
natural competition among buyers and sellers inevitably 
flings out from all effect on value of the otherwise possible 
action of these free and bountiful gifts, as have been already 
fully illustrated in chapter first. No piece of land ever 
yet had one particle of Value until human efforts of some 
sort had been expended on it or in some connection with 
it, for two excellent reasons, first, no man would ever even 
think of saying to another in reference to such a piece of 
land " Give me something for it and I will pass it over to 
you," and second, even if he did think of such an absurd- 
ity the other would reply " Why should I give you any- 
thing for something to which you have not the least claim, 
especially as I can take for nothing just such pieces all 
around here ? " It must be remembered, not only that God 
gave the whole earth to all mankind without distinction, 
but also that his bountiful hand scattered all peculiar kinds 
of patches in great number upon each of the Continents. 
There is a plenty of Utility (gratuitous) in land-parcels 
just as God made them, but no possibility of Value (oner- 
ous) till other hands than His have touched and benefited 
them. 

What, then, are the onerous elements that enter into the 
value of land-parcels and constitute their Cost of Produc- 
tion ? There are only two such elements, namely, Qost of 
Labor and Cost of Oapital. To find out exactly what 
" Labor " is, and what there is in it entitling and assuring 
its reward in " Wages," will be the task and perhaps also 
the pleasure of the next chapter ; but it will suffice for 
the present discussion to say, that Labor is human exertion 
put forth for the sake of a commercial return. Lands can 
by no possibility be brought out of a state of nature into a 
state of value without the expenditure of Labor : and the 
actual or estimated cost of this labor, accordingly, is the 



162 PRINCIPLES OF POLITICAL ECONOMY. 

first constituent of the Cost of Production of valuable 
lands considered as Commodities. Labor, however, can 
not apply itself to free lands in order to make them val- 
uable without the co-operation of another onerous element, 
namely, Capital, in some of its many forms. For example, 
if forest lands are to be made tillable, the trees must first 
be cut down, and this will require besides the muscular 
exertion of the laborer something in the way of an axe, 
which is capital, the result of previous labor reserved to 
assist in further production : if native prairie is to be sub- 
dued to a valuable commodity, something of the nature of 
a plough must be employed in the process, and horses or a 
steam engine to propel it, and a plough and horses are 
capital, and still require fresh labor to make them useful in 
production. But capital always costs something ; and, 
therefore, the cost of the Capital enters in as a second con- 
stituent into the cost of production of Land-Commodities. 
But these two costs are all. We shall search in vain for 
any other onerous element in the cost of producing com- 
modities. There are two variables only in the Cost of Pro- 
duction, which itself is the sum of the two subordinate costs, 
(a) And now let us analyze first the Cost of Labor in 
this connection, and then second the Cost of Capital, and 
we shall soon reach radical and unchangeable ground, and 
find in the sum of these two an aggregate Cost of Produc- 
tion, and also all of the variables that can ever enter into 
such Cost. It is plain to reason, that only by Labor non- 
valuable land-pieces ever did or ever can become valuable. 
Captain John Smith understood this in 1607 at James- 
town as well as anybody understands it now : there were 
48 gentlemen, and only 12 tillers of the soil, among the 105 
colonists, who originally landed there : " nothing is to be ex- 
pected hence" he wrote of the new country, but by " labor : " 
new supplies of laborers, aided by a wise allotment of land- 



MATBEIAL COjNIjVIODITIES. 163 

parcels to each colonist, secured after five years of struggle 
the lasting fortunes of Virginia: '■'•men fell to building 
houses and planting corn " .• the very streets of Jamestown 
were sown with tobacco ; and in fifteen years the colony 
numbered 5000 souls. 

Now the cost of Labor is analyzable into three variables 
only, namely, (1) the efficiency of the labor ; (2) the rate 
of nominal wages paid; (3) the cost to the employer of 
that valuable^ in which the wages are paid. Let us see : 
what an employer wants is to get things done ; conse- 
quently, if an employer hire two men to work for him at 
the same rate of wages, and if one be twice as efficient a 
laborer as the other, the cost of the labor of the first is only 
one half the cost of the labor of the second : therefore, a 
high rate of wages does not mean a high cost of labor when- 
ever and wherever the laborers are very efficient. As a 
rule, it is found, that the cost of labor in reference to a 
given product is the least in those countries, like the United 
States and Great Britain, in which the rates of nominal 
wages are the highest ; because, it is found also, that a high 
efficiency of laborers accompanies both as a cause and as an 
effect high rates of wages. 

Secondly, there are striking differences in the rates of 
nominal wages paid for a day's work in the same general 
employment in different parts of the same country, and 
especially in different countries. The agricultural laborer 
in the west of England, say in Wiltshire, gets about 
10s. per week, while in the north of England, say Notting- 
hamshire, laborers at the same general work get about 
16s. per week. Walker in his Wages-Question gathers 
from the best authorities many such statements as 
these : " On the Grand Trunk Railway in Canada the 
French-Canadian laborers received 3.s. 6(i. a day, while the 
Englishmen received from 5s. to Qs. a day, but it was found 



164 PRINCIPLES OF POLITICAL ECONOMY. 

that the English did the greatest amount of work for the 
money." " In the quarry at Bonnieres, in which Frenchmen, 
Irishmen, and Englishmen were employed side by side, the 
Frenchmen received 3, the Irishmen 4, and the Englishmen 6, 
francs a day; and at those different rates the Englishman 
was found to be the most advantao-eous workman of the 
thi'ee." " Tlie statistics of the iron industry in France 
show, that on the average 42 men are employed to do the 
same work in smelting pig iron as is done by 25 men on 
the Tees." " In India, although the cost of daily labor 
ranges from 4:^d. to Qd. a day, mile for mile, the cost of 
railway work is about the same as in England." Thus it 
is plain, that a high rate of wages does not import a 
high cost of labor, but rather the reverse. A vast mass 
of current fallacies are disposed of in a moment by this 
truth seen in its grounds. The United States have shown 
in the past .the highest rates of nominal wages in the world, 
and at the same time have shown the lowest costs of labor 
to the employers, because as a rule the laljorers here have 
been more efficient than elsewhere. England has the 
highest rates of wages and the lowest costs of labor in 
Europe for the same reason. The degree of efficiency 
shown by different laborers is the second variable in a cost 
of labor. 

Thirdly, if that valuable, whether money or other, in 
which wages are paid, varies in cost to the employer, then 
the cost of the labor paid for by that valuable, efficiency of 
the laborers, and nominal rate of pay remaining the same, 
will of course be varied thereby. We shall learn hereafter 
in the chapter under that title, that the value of " Money" 
is by no means invariable even in one country, just as we 
have already learned the variable nature of all other 
values; and, too, wages are not always paid in money, 
though they are commonly reckoned in the terms of money ; 



MATERIAL COMMODITIES. 165 

and. accordingly, the third and. last variable in a cost of 
labor is the cost to the employer of that valuable, whatever 
it be, in which the wages are paid. Assuming, as we may, 
that given wages are paid, in money, then any country that 
has for any reason a more abundant money than another 
may clearly pay higher rates of nominal wages than that 
other without making its costs of labor any higher than in 
that. The United. States, for example, has usually had a 
very abundant money (not always of the best kind), which 
of course has tended to make higher the current prices of 
all commodities, and this has enabled capitalist-employers 
to pay higher nominal rates of wages, without at all 
enhancing relatively the costs of labor, and also without 
really benefiting the laborers. 

(b) We will now analyze second the Cost of Capital in 
this connection, as the only other element of cost in 
the Cost of Production of Commodities in general, and 
particularly now in the cost of making worthless land-pieces 
valuable so as to be used in further production. Here too 
we find three variables, no one of which can be safely 
neglected any more than the other three in the reckoning 
that has for its object a prospective cost of production. 
These are, first, the current rate per centum; second, 
the time for which the capital is advanced; and third, 
the liability of that form of capital to sloiv or rapid 
wearing out. For instance, under the first variable, the 
rate per centum of capital, if the rate at Amsterdam 
be 3 and that at New York be 7, if the cost of labor be 
equal in the two cities, if the time of advance be one year, 
and if there be no liability of the capital to wear out; then 
any commodity made at Amsterdam with an outlay of $100 
may be sold at a profit for f 103, while a similar commodity 
made at New York with the same outlay cannot be sold 
for less than |107. All other things being equal, a low 



166 PRINCIPLES OP POLITICAL ECONOMY, 

rate per centum of capital in any country gives that country 
an advantage in the markets of the world for selling 
its commodities over other countries offering similar 
commodities where the rate is higher, because its cost of 
their production is less. Of course also such a country 
can subjugate its wild lands and make them valuable at 
less cost than the other countries. 

To illustrate the operation of the second variable, the 
time for which the capital is advanced, let the same 
suppositions be continued, excejjt that the time of advance 
at New York be extended to four years. Then the 
commodity may be sold at and from Amsterdam, as before, 
at $103, but the corresponding commodity at and from 
New York for not less than $131, so far as mere cost 
of production determines the prices. This point is also 
well shown up in the case of wine, which, to reach its 
perfection, requires to be kept a number of years, for, if it 
be genuine and ripe, its cost of production has been by so 
much enhanced by its delay in reaching the market. If 
the time of advance be long, and the rate per centum high 
at the same time, the cost of capital from the two causes 
combined multiplies the cost of the product; and conse- 
quently, only countries in which the rates are low can 
successfully engage in enterprises requiring a large capital 
to be invested for long periods before returns are realized. 
One million of Dutch capital at 3% a year, expecting to 
realize returns only after 20 years, may be remunerated by 
products selling for $1,806,111; but American capital 
under like circumstances, except that the rate here is 7%, 
must have a return of $3,869,685, or lose by the operation. 

To illustrate the action of the third and last variable, we 
must observe, that all forms of capital wear out, but some 
forms much faster than others, and that this makes a dif- 
ference in the sinking-funds that must be reserved out of 



MATERIAL COMMODITIES. 167 

the gross profits of the capital in order to replace the prin- 
cipal whole. This difference will at once affect the cost 
of capital, and so of production, and so indirectly the 
ultimate value of the product. Suppose there are two 
commodities, which we will call A and B, produced in 
two different establishments, in each of which is invested 
a capital of $11,000, in one of which is used a machine that 
costs $1000 and is wholly worn out by one year's use, and 
in the other a machine costing the same sum, which will 
last, however, for ten years. Suppose further, that the rate 
per centum of profit be 10, and the time consumed in com- 
pleting each of the two products be one year. Now there 
is a marked difference in the Cost of Capital in the two 
establishments, and this difference will indirectly but 
immediately appear in the Value of the respective prod- 
ucts. For, to A must be charged not only $1100, the 
interest on the whole capital at the current rate, but also 
another $1000, wherewith to replace the machine already 
worn out by a single year's use. A, accordingly, cannot 
be sold without loss for less than $2100. B, however, 
will cost less and can be sold for less at the usual profit. 
Because, to it must be charged, as before, $1100, current 
rate of profit on the capital invested, and only $100 (really 
less than that for an obvious reason) to replace the durable 
machine after ten years' use. The capitalist, therefore, 
can sell B for $1200, and make something over the cur- 
rent rate of profit. 

Since the cost of capital invariably resolves itself into 
these three variables, every capitalist in order to become 
successful as such must give strict attention to all three of 
these points. To any one who projects the making of 
valueless into valuable land, or valuable into more valu- 
able land, by the expenditure of capital upon them for 
that purpose, it becomes a matter of prime importance for 



168 PRINCIPLES OP POLITICAL ECONOMY. 

him to inquire how long a time the whole process will 
take, how much he must allow per annum for the cost of 
all the implements employed, and especially how complete 
in action and duration are these costly implements. The 
durahility of machinery^ whatever the name it bear and 
whatsoever the work it do, is at once the most significant 
and the most neglected point in the actual and prospective 
Production of our time and country; and no condemnation 
can be too severe upon a policy of public law, such as now 
prevails, whose whole tendency and actual effect is to 
worsen the cjuality and lessen the durability of all com- 
mercial implements whatsoever, from the needle to the 
locomotive. The same abominable public policy increases 
the cost and decreases the durability of all agricultural 
implements, like the axe and the plough, designed and 
adapted to transform valueless and non-productive into 
valuable and food-producing lands. 

2. Now, having fully seen the elements of the cost of re- 
ducing land itself from a natural into a valuable and pro- 
ductive form, what next are the elements of the cost of 
production of those material commodities produced for 
sale hy the aid of these subdued and now productive lands? 
Commodities so produced constitute the second class in 
the law of their Cost of Production. And a vastly im- 
portant class it is. The food of the world, so far as that 
food is purchased as the product, whether animal or vege- 
table, of valuable lands ; the fuel of the world, so far as 
that fuel is bought from owned and accessible forests and 
mines ; the clothing of the world, so far as the fabrics 
come from the cultivated cotton and flax and wool and 
skins offered for sale ; the shelter of the world, so far as 
the wood and brick and stones and lime are drawn from 
valuable lands and quarries ; and the warehouses and the 
temples and the theatres of the world, built, as they are, 



MATERIAL COMMODITIES. 169 

out of the products of costly and rentful lands : these all, 
and many more like these, constitute a class of commodi- 
ties immense in their volume, whose cost of production 
has in it an element peculiar and additional to that of the 
first class already analyzed, and to that of the third class 
also soon to be considered. 

This peculiar and additional element in the cost of pro- 
duction of these things, class second of commodities, is 
called RENT. Interminable have been and still are, espe- 
cially in the British Islands, the definitions and discussions 
upon Rent: they have boxed the compass of economical 
nomenclature : they have run up and down the entire 
gamut of possible expression on such a theme. David 
Ricardo, the Anglo-Jewish Banker, formerly announced, 
near the beginning of this century, that " Rent is that for- 
tiori of the produce of the earth, which is paid to the land- 
lord for the use of the original and indestructible powers of 
the soiir Two objections lie with fatal weight against this 
definition and all that is involved in it : first, there are no 
"indestructible powers of the soil," either "original" or 
acquired, since the universal verdict of all agriculture has 
been and still is, that the " powers " of all soils are contin- 
ually wearing out, and need to be constantly renovated by 
fertilizers and manipulations of all sorts ; and second, even 
if there were such " original and indestructible powers," it 
would be impossible to separate them from the additional 
" powers " acquired by means of the capital expended to 
bring that land from the state of nature to its present 
state, and the landlord has had nothing to do with any 
" powers " of the land except those conferred by his own 
labor and capital upon it, and can by no possibility put 
himself into a position where he can enforce any claim of 
his own for a return from any " original powers " of any 
land-parcel whatever. The simple truth is, and it illu- 



l70 PRINCIPLES OF POLITICAL ECONOMY. 

mines the whole subject of agriculture and its products, 
that the value of land-parcels and also the value of the 
transient use of them, or Rent^ hang wholly on the onerous 
human efforts involved in them, and not at all on original 
and gratuitous utilities. Science has only to unfold the 
plan of God and its actual and beneficent workings, "/w 
the sweat of thy face shalt thou eat bread.'' All that God 
furnishes to men in order to get a living and in order even 
to get rich is Opportunity- The opportunity is ample. 
The call to a partnership in Effort as between God and 
men is loud and constant. The world with all its powers, 
free lands with all their utilities, the change of seasons, 
the blessed sun and the blessed dew and rain, the constant 
disintegration of rocks beneath the soil and the gradual 
clothing with lichens and moss and verdure of the rocks 
above in preparation for a new soil, and the wonderful 
chemistry of the vast laboratory of Nature, all work night 
and day without fee or reward in the service of mankind. 
But men themselves must not intermit their labor. All 
values are of their creation and maintenance. If they 
cease or relax their labor upon land-pieces so only made 
valuable and rentful, then will the value and the rent be- 
gin to slip away inexorably, and no prayers and no regrets 
will avail to call them back. 

Now, then, since commodities of the second class in the 
cost of their production must respond not only to the cur- 
rent cost of Labor and Capital in bringing them to market, 
but also something additional in the way of Rent to the 
past cost of the implement, the land-parcel, Avithout whose 
contributing agency present results could not be gained ; 
Ment is the Rendering for the present use of a Valuable 
made such by past Labor and Capital. Land-parcels leased 
for agriculture ; mines and the access to them leased for 
the production of metals and minerals ; and forests whose 



MATERIAL COMMODITIES. 171 

growth has been permitted by the past abstinence of their 
owners ; all properly yield a rent ; because these forms of 
capital, whose existence is due to past labor and capital, 
are present contributors to products, whose sale must com- 
pensate not only present labor and the use of current 
capital, but also the use of these more permanent forms of 
capital long ago created. 

A competent authority estimated in 1881, that the land- 
parcels of the United Kingdom of Great Britain were 
worth £3,000,000,000; and there were at the same time 
6,000,000 of inhabited houses, excluding factories and 
business premises and tenements renting for .£20 and 
under. Most of these lands and houses are rented by 
their owners to the actual occupiers on the just principle 
explained above, inasmuch as the lease-system is the pre- 
vailing one in that country. According to the Census of 
1880, there were 4,008,907 so-called farms in the United 
States in that year. Most of these are held in fee simple, 
and are tilled by their owners ; but just so far as land- 
patches and forests and mines are leased in this country, 
their products must provide in their price of sale for cur- 
rent rents, as well as current costs of present produc- 
tion. This is just as it should be, and just as it must be, 
if Capital is to take this form of assisting the processes of 
future production. 

But this form of Capital, as well as all other forms of 
the same, is perpetually wearing out, that is to say, is 
gradually losing its power to contribute as at first to the 
present and future processes of production. This loss is 
in the very nature of things, — in the very nature of all 
Capital. The great Father never intended that His chil- 
dren should cease from work. He has ordered all things 
so, that they cannot cease from work, and continue to live 
in any comfort and progress. Value, as we have already 



172 PRINCIPLES OF POLITICAL ECONOMY. 

thoroughly learned, is not a (quality that can be put into 
anything to sfa/j there : it is a recurring relation of mutual 
services between man and man ; and each of these services 
of the three kinds involves recurring Efforts. Capital is 
a form of Value ; and, consequently, it cannot possibly 
take on a shape not subject to the latv of dimmishim/ 
returns. This is deductive proof. And precisely the 
same result is reached by Induction. Men have noticed 
and recorded the fact at all times, and have made pro- 
vision for it in their pecuniary calculations, that tools and 
machinery need to be repaired and then replaced, that the 
current interest on moneyed capital tends to decline from 
generation to generation in all progressive countries, and 
also that lands and other forms of real estate so lose their 
productive and rental power unless cared for in renovation 
that men migrate and emigrate in consequence. 

How much Rent shall the tenant pay to the landlord foi' 
the present use of the hitter's old lands? Or in other 
words, how nuich shall be added to the going price of the 
product on account of the diminishing return due for the 
use of the old landed capital ? This is a hard question to 
answer : probably the hardest question that is ever asked 
in practical Economics. Mr. Gladstone wrestled Avith it 
as complicated with a larger political question in passing 
the Irish Land Bill of 1881. Another honest athlete, Mr. 
Parnell, wrestled with it upon the same parliamentary 
arena. Scores of able and practical statesmen in Great 
Britain, and elsewhere, have strugoled to reach a practical 
answer to this question ; and scores of able and theoretical 
economists in all countries have striven to reach a theoret- 
ical answer to it. Most of these answers have been inhar- 
monious, and many of them contradictory, with each other. 
The Land Bill of 1881 created a parliamentary Commis- 
sion, whose duty' and authority it was, to visit the Irish 



MATEEIAL COMMODITIES. 173 

counties in person, to gain information in detail, to take 
sworn testimony of all the parties concerned, and then to 
lift or lower rents according to their discretion. The 
discontent of the Irish tenants in general was considerably 
mollified by the action of this Commission ; while the 
debates and wrangles of the parliamentary session of 1889, 
and the persistent agitations for Home Rule (an agitation 
at once political and economical), show that the results of 
the work of that Commission were not wholly satisfactory, 
(a) It is easy enough to see why the solution of this 
general problem is so extremely difficult. The new is 
mixed in with the old. The result of the old labor and 
capital is a productive piece of land; the current labor 
and capital is expended upon the same piece to make it 
more productive ; the same sort of thing is done now that 
was done then, and the results of the two are now thor- 
oughly intermixed; there were original free utilities in 
soil and growths and deposits, but tliese had and have no 
value and can never yield rent; the old labor and capital 
improved the soil by clearing and drainage and fertilizers, 
and made the growths and deposits more valuable and 
accessible, so that even the old onerous was more or less 
transformed into the original gratuitous; and now the 
new onerous, the fresh cultivation and fertilization and 
betterments generally, in soils and roads and buildings, 
are inextricably commingled with former betterments of 
the same general kind and with the original free gifts of 
Nature. No wonder the Commission of 1881 found diffi- 
culty in determining what was what and which was which ! 
No wonder that Irish tenants on long leases quarrel with 
their landlords about the betterments, how much is new, 
how much is old ! It is clear, that when the lease is ended, 
the landlord ought to compensate the tenant for all that 
portion of the latter's betterments, which is not already 



174 PRINCll'LES OF POLITICAL ECONOMY. 

worn out ; it is ecjually clear, that the tenant ought to be 
willing to pay a fair rent for the use of the unexpended 
betterments of the landlord and his predecessors ; while 
there is room and verge enough for endless disputes be- 
tween them as to the respective amounts of these, and con- 
sequently as to the amounts of rent and of its remissions. 

These (Hl'liculties and intricacies do not belong to the 
principles of tlio Science of buying and selling, which are 
in the main clear and certain in their action, but are 
incidents ot" determining in certain cases what that is, 
which is bought and sold. Parties in interest in all kinds 
of buying and selling are sometimes compelled to go to 
the courts in order to have the Law decide what their 
respective rights are as buyers and sellers ; but this is no 
fault of Political Economy as a science, or of trading as 
an art ; two men in all cases make their own bargain, 
according to their own estimate of the respective render- 
ing and receiving of each ; if the uncertainties of lan- 
guage, the misconception on the part of one or both of the 
terms agreed upon, and the misa})prchension of some of 
the circumstances of the case, breed confusion and lit- 
igation, all this cannot be justly charged to the science of 
Political Economy. 

Nevertheless, it is into these incidental intricacies and 
uncertainties, that Henry George's now famous theory of 
landed rents and the taxation of tliem, strikes its roots. 
Instead of building his structure upon tirm and open 
ground, so that thoughtful men can see that his basis is 
solid and scientilic, Mr. George dashes at once into a 
thicket and lays his foundations with quickness and assur- 
ance where all is dark and doubtful, or at best where all is 
rather incidental than fundamental and demonstrable, and 
pretty soon displaj'-s a superstructure that appears attrac- 
tive both without und within, tluough whose airy halls 



MATERIAL COMMODITIES. 175 

he knows how to conduct to their delight the credulous 
and discontented, and on whose walls hang plausible pic- 
tures calculated to invite and hold the attention of the 
masses. Let the perfect integrity and rhetorical ability of 
Mr. George be freely conceded ; let it be freely conceded 
also, that he teaches in his books and lectures a great deal 
of vastly important industrial truth in a popular way so as 
to accomplish great good, such, for example, as the imper- 
ative need of greater simplicity in taxation, and the indis- 
putable riglit of the people to their liberty in buying and 
selling; yet it must at the same time be owned, that he 
has never yet found out exactly what Value is in general, 
consequently what are the causes of value in lands, and 
what are the nature and grounds of Rent. Something 
more of patient and radical analysis at the outset, and of 
logical and scientific unfolding afterwards, would have 
made Henry George one of the chief benefactors of his 
age. 

(b) It is also very easy to see, that the current price of 
produce, that is, what is gotten in return for the sale of 
what is gotten out of the land-parcels, must have a domi- 
nant influence upon what can be paid as rent for the use of 
the parcels. Unless the return from the produce be suf- 
ficient to reward at current rates the present labor and 
capital employed upon the parcel, the parcel will not con- 
tinue to be cultivated at all, otherwise men would act 
without a motive for action, which they never do ; unless, 
therefore, the price of produce be more than high enough 
to repay current wages and profits, there will be nothing 
left for Rent ; and, consequently, the amount of the rent 
that can continue to be paid for lands will be the difference 
between the going price of what is produced from them and 
the current expenses of cultivating them. Here, as every- 
where else within the domain of Exchange, Competition 



176 I'KliNCll'LKS OF 1'(M.1TICAI. ECONOMY. 

exerts its beneficent action. If one dealer, or ten, endeav- 
ors to put a [)ricc upon the produce more than enough to 
pay current wages and profits with a fair margin for the 
diminishing rate of rent, thcie are a plenty of others, 
dealers iu tiie same grade of produce, who will be con- 
tent with a fair return for present and past exj)euditure of 
labor and eai)ital ; and the action of these will effectually 
debar the others from exorbitant rates. The price of prod- 
uce, accordingly, under free ('()mj)etition, is the divinely 
appointed regulator of landed rents. It regulates also, 
though more indirectly, the current rates of wages and 
profits in agriculture. 

Very different from this is Ricardo's doctrine of Rent. 
lie makes everything turn on the Cost of Production of 
the Rrodui^!, which is P^ffort, ignoring the ever- varying 
demands for the })roduce, which is Desire. His doctrine, 
too famous aud i-oo long received for us to pass by in this 
connection, tliougli now supcrannuattnl, was for substance, 
this: there are some lands in every country whose jjroduce 
just re]iays tlu^ (expenses of cultivation, and conse<iuently 
yields no margin I'oi' rent ; and tlic cost of i)rodu(!tit)n on 
these rentless and poorest lauds under cultivation, will 
determine the price of the produce ; and as there can be 
but one price in the same market, the produce raised on 
more fertile land will be sold for the same price, and this 
price, besides paying the cost of cultivation, will yield a 
rent rising higher according as the land is more fertile; 
so that the rent paid on any land is always a measure of 
the excess of productiveness of that land ovei- the least 
productive land under ])aying culti\ation ; and therefore, 
an increased demand for food in consequence of increased 
population, and the higher j)rice resulting, will force cul- 
tivation down upon still poorer soils, or compel a higher 
culture for less remunerative returns on the old soils, 



MATERIAL COMMODITIES. 177 

according to the law of diminishing returns, which in 
either case will raise the rents on all the soils above that 
grade that just repays the expenses of cultivation ; so that 
it is the sole interest of landlords, as such, that population 
should be dense and food high, their interest being directly- 
antagonistic to that of the other classes of the community. 
(c) Finally, in this connection, it is easy enough to see, 
what were the motives on the part of the landlords, and 
what were the results on the part of the masses, of Great 
Britain, in putting on and keeping on the infamous Corn 
Laws, so-called, which were repealed forever in 1846. 
The Corn Laws forbade the importation of foreign cereals 
under heavy pecuniary penalties. Tlie simple purpose of 
the landlords then goveriung England was to raise the 
price of their grain by shutting off Competition of for- 
eigners by means of these prohibitory tariff-taxes. It was 
Protectionism pure and simple. It was designed to raise 
the price of bread to the masses of their countrymei), and 
often did raise it to the point of their starvation. But we 
have just seen, that the higher the price of the produce, 
the wider the margin for Rent for the lands that produce 
it. The Corn Laws of England enriched the landlords at 
the expense of all other classes and to the starvation of 
many of the poor. As has been well said, this was the 
most successful of all the many expedients that have been 
tried, " to fertilize the rich mmi's land hy the sweat of the 
poor maris brow." Tlie words of Daniel O'Connell, spoken 
Sept. 28, 1843, in his parliamentary fight against the high- 
tariff Corn Laws, were surfeited with truth and righteous- 
ness : " But what is the meaninr/ of ' Protection ' ? It means 
an additional sixpence for each loaf; that is the Irish of it. 
If the landlord had not the protection., the loaf would, sell for 
a shilling .1 hut if he has protection., it will sell for one and six- 
pence. Protection is the English for sixpence ; and what is 



178 PRINCIPLES OF POLITICAL ECONOMY. 

more^ it is the English for an extorted sixpence. The real 
meaning of ''Protection^' therefore., is robberg, — robber g of 
the poor bg the rich.''' 

At the present moment and for twenty-five years past, 
the public laws of the United States ostensibly relating to 
Taxes, have had an immense influence upon the value and 
rents of the agricultural lands of the country to depress 
them ; because these laws have put up nearly or wholly 
impassable barriers to the coming in of those foreign goods, 
against which the farmers would naturally and profitably 
and inevitably have sold their surplus agricultural produce ; 
by destroying the foreign market for farm products, these 
laws do in effect destroy a large part of the value of the 
farms of the country, and of what would otherwise be the 
rentals of a part of them ; the Constitution of the country 
exj)ressly forbids any taxation whatever of Exports, but 
these laws have precisely the same effect on the value of 
farm products if they were themselves forbidden to be 
exported, because those goods for which these would 
be otherwise exchanged for a profit are forbidden to be 
imported. A market for products is products in market. 
Thus these wretched laws lower the price of farm products, 
and consequently the value of farms and of their rents, 
and impoverish the farmers who are nearly one-half of the 
entire population of the country. 

While these paragraphs are being written, comes the 
intelligence of the formation of the " North American Salt 
Company," whose purpose is in their own language "• to 
unifg and sgstematize the salt interests of the United States 
and Canada,'' and to this end " arrangements have been com- 
pleted for the purchase and control of nearlg all the existing 
salt properties of the North American continent." As this 
is a fair instance out of some thousands, in which a tariff- 
tax has the designed effect to lift or lower values which 



MATERIAL COMMODITIES. 179 

deeply concern the people, let us look at it for a moment. 
On the average of the past twenty-five years the tariff-tax 
on salt has in general doubled the cost of that necessary of 
life to the whole people of the United States. When 
Canada had no such tax, American makers of it sold salt 
sometimes to the Canadians 40% less than they would sell 
it to their own countrymen. On the basis of this United 
States tariff-tax (it would never have been dreamed of 
without it) this new company comes forward with a scheme 
of international monopoly to control in their own interest 
the price of a prime necessity of life. They propose to 
issue stock and bonds to the amount of $15,000,000, with 
which to buy up " the existing salt properties " ; and they 
frankly avow in the prospectus from which we are quoting, 
that profits of 12,000,000 a year on their capital are justi- 
fied by the present outlook. Whence are these immense 
profits to come ? Out of the pockets of the masses of the 
American people bound hand and foot in the meshes of a 
legal monopoly, which they themselves allow themselves to 
be ensnared in ! In a similar but more outrageous way, 
are bound up at the present moment in the secret so-called 
" Trusts " about forty more of the necessaries of life ; each 
one of which, unless it be the " Standard Oil Trust," has 
its footing in a so-called " protective " tariff-tax, and would 
collapse instantly on the repeal of that ! 

It was necessary in order to complete our study of the 
second class of material commodities, namely, those pro- 
duced from valuable and rentful lands, to glance in passing 
at the frequently disturbing effect on these, aside from their 
cost of production, of sinister laws plausibly imposed upon 
an unsuspicious people in the interest and at the instance 
of a privileged few. 

3, It only remains in this chapter, devoted to the dis- 
cussion of material Commodities in their three economic 



180 PRINCIPLES OF POLITICAL ECONOMY. 

classes, to conclude with a glance at the third class, namely, 
those material valuables that are obtained from free and 
unowned sources, such as masts cut in the wilds of America 
on both oceans two and three hundred years ago, and fish 
caught on the Banks of Newfoundland, and furs gathered 
to such profit in the north by the Hudson's Bay Company, 
and salt evaporated in the tropics by a free sun from old 
ocean's brine. 

These, and all such things as these, have a cost of pro- 
duction determined only by the cost of present labor and 
capital, and consequently a grade of value determined only 
by present Demand and Supply, unentangled for the most 
part by questions of rent and prior claim and taxation and 
nationality. All these things, accordingly, are relatively 
cheap, except as the element of Scarcity, and on that 
account of strong Desire, may sometimes come in to 
enhance the value. No man can tell the time exactly 
when French fishermen from the coasts of Brittany ven- 
tured over to the Banks of Newfoundland in their frail 
barks for the abundant cod in those waters, and went back 
home again at the close of the season freighted with plenty 
of a free and cheap food for their families and countrymen ; 
or when it was that rude men calling themselves English 
followed these in their western track for the same general 
purposes, to become thereby hardy seamen on deeper seas, 
such as those who gained long afterwards the naval vic- 
tories of Nelson ; and we have all read in the fascinating 
pages of Irving the ventures and adventures of John Jacob 
Astor, the attraction of free furs in the NortliAvest of 
America, the hazards and the history incident to obtaining 
them, and the immense profits gained by their sale in the 
markets of the old world. 



MATERIAL COMMODITIES. " 181 



CHAPTER III. 

PERSONAL SERVICES. 

There are three kinds of things only ever bought and 
sold in this good world of ours. In the preceding chapter 
we have conned carefully the first kind, material com- 
modities, in their three subdivisions of land-parcels and 
products of such parcels and products of free land and 
sea. In the present chapter we come to study the second 
kind of valuable things, personal services, which we shall 
also find subdivisible into three classes. We have treated 
of Commodities first, because their value in its grounds 
and changes is more easily understood than that of the 
other two kinds, while in point of time Services might well 
enough have been considered first, since it is these that 
manipulate into value the originally rude forms of Nature. 
The main difference between the two is this: in Com- 
modities the attention is naturally drawn to tangible 
things offered for sale, such as lands and wheat and fish ; 
while in Services the attention is strongly drawn to per- 
sons offering them for sale, such as the common laborer 
and the skilled artisan and the professional artist. This 
distinction, though obvious and useful as between com- 
modities and services, is not after all radical; because 
Economics is a science of Persons from beginning to end ; 
inasmuch as the services precede and are merged in the 
commodities, and inasmuch as the Desires (personal) of 
some men for the renderings of other men antedate and 
underlie all exchanges whatsoever. 



182 PBINCIPLES OF rOLlTICAL ECONOMY. 

Personal Services are technically named Labor in the 
science of Political J'^coiioiny. This nomcnclatiuc is t)ld 
and familiar, and will probably always persist on that 
acconnt, but it is not of itself of the happiest, and it gives 
birth to some ambiguities and many fallacies. Let us look 
at these for a moment, before we pass to the definition and 
discussion of what is commonl}^ called Labor, but what is 
better described by the term, Personal Services. 

Contrast will hel}) us a little here. Connnodities can 
always be measured l)y some Standard outside of them- 
selves : for example, land-i)arcels are measured into acres 
and fractions thereof by a surveyor's compass and chain ; 
metals and cereals are weighed into centners and parts 
thereof by scales of some sort ; and sugar is not only 
weighed at the custom-house, but tested as to other qual- 
ities by the polariscope. Now land, wlieat, sugar, and all 
other connnodities, have an existence separate from the 
standards that measure them, and whether they are 
bouglit or not they continue for a time essentially the 
same. They exist j(;gr se. They were indeed brought 
into existence on purpose to be sold, and if they cannot be 
sold, similar things additional will not then and there be 
brought into the market, but these things themselves ai'e 
there separate from the seller and separate from the buyer. 
Not so with personal services. They do not exist per se. 
They are not separate from the seller, and they cannot 
come into existence Avithout a buyer. Skill is something 
the artisan cannot part with, nor can ho sell the service to 
which the skill gives lisc till the buyer be present with 
tlu? return-service in Iris hands. The Lnbcncr of any class 
cannot put his "service" on exhibition, and Ihcn wait for 
a buyer, as the commercial drunnner sells goods by sanijile. 
Tlie doctor, for example, nuist have his patient before he 
can show his skill. The buying and selling of personal 



PEESONAL SERVICES. 183 

services, accordingly, is more intimate and ultimate than 
the buying and selling of commodities : it brings people 
more closely together : it depends much more on traits of 
character and on acquired skill. 

Right here we may see clearly the main objection to the 
term, " Labor," as commonly used, and the bad fallacy to 
which it gives birth. "Labor" is indeed in form and 
origin an abstract term as much as "service" is, with this 
difference, that the word " service " radically implies the 
person serving and another person served at the same 
instant ; but the term " Labor " has long been taking on 
itself in the mouths of men a concrete meaning, as if it 
might be something separate from the laborers, as in the 
common phrase "Labor and Capital," which has already 
done a world of mischief and is likely to do a good deal 
more, because it seems to imply, that the two are alike 
in independent self-existence, and that they stand over 
against each other on equal terms for a fair bargain or 
for a free fight. This is not the case, as we shall see more 
fully later ; since capital is something separable from the 
capitalist, always a commodity or a claim, always trans- 
ferable, always valuable or else it will not be " Capital." 
Some of the German economists, and particularly John 
Conrad of Halle, have avoided this difficulty by a clean 
nomenclature. They say '•'• Jjdbor-givers^'' and '■'• Lahor- 
tahers^^ instead of Laborers and Capitalists, and especially 
instead of " Labor and Capital," thus emphasizing the per- 
sonal element in both terms, and also leaving themselves 
free to define and use the term " Capital " as distinct from 
any particular capitalist, while the term "Labor" cannot 
be defined and used as distinct from any given laborer. 
This precise point, though probably new, is of very con- 
siderable consequence in the true doctrine of Wages. 

We are compelled by the exigencies of the English 



184 iMMN('irLii:s of I'oLrrujAi. economy. 

language and tho still stronger fetters of economical cus* 
torn to continue to use the terms ''Labor" and "Laborers" 
ill their technical sense, and in connection with the sci- 
entilic terms " (^ipital " and " (Capitalist " ; hiil we shall 
always use each of these words in the same meaning, and 
free thorn as far as jxissible from the fungous accretions 
that have fastened U])t>n them in the coui'se of time. 

Personal fjf'ort of titij/ k'nul put forth for anotlu'r in view 
of a returH-.se roiee and for the sake of it is labor. 

Laborers are persons renderin;/ their peculiar services to 
other persons for a eoiitmerrial reward. 

The valuable received bi/ a laborer f>r his service rendered 
is ]Vages. 

These delinitions exclnde Iroiii onr ciri-le of view all 
Efforts of anybody i)ut forth for other than connnercial 
reasons ; and they include all Efforts of everybody, from 
the President to the scrub, put forth under the uiduce- 
ment of a return-service or Wages. No good end seems 
to be reached by trying to distinguish, as Erancis Walker 
does in his " Wages-Question," between the "Wages-class" 
and the "Salary-class," because there appears to be no 
st'ientilic or other economical ditferi'ncc between Wages 
and Salary. Kach is a return-service for another service 
rendered, and that is all there is to it. The whole class 
of Laborers, accordingly, in any civilized and progressive 
country, is imn\cnsely large and becoming constantly 
larger. Excluding, of course, I'loni this class all persons 
in so far as they render so-called moral services to others, 
which are in their very nature free, such as those that 
spring from duty and courtesy and benevolence, and these 
happily are also an immense and fas t-nugmen ting class, 
though our Scienci^ has nothing to do with them directly, 
the number of those })ersons in every connnunlty an<l in 
every rank of every community, who sell personal services 



PEESONAL SEEVICI5S. 185 

of some sort in distinction from commodities and credits, 
is pretty nearly as large as the 'per capita population of 
adults and competents within that circuit. It must be 
borne in mind, that the same persons whose primary busi- 
ness it may be to sell commodities or credits, often sell 
services also in some subordinate or incidental way ; and 
also, that the same persons, who are dispensing on the one 
hand their gifts and moral renderings freely, are fre- 
(juciitly of the busiest in selling on the other hand their 
personal services for pay. In other words, the sellers of 
Services canijot be discriminated an to their perHonn from 
other sellers, or even from downriglit givern ; but the action 
itself, and the law of it, is quite distinct in the three cases 
of selling, and utterly diverse in the one case of giving. 

Now, can we sub-classify witliiu this vast class of ser- 
vice-sellers, so as to help us understand better the class as 
a whole, and so especially as to help us understand better 
the Law of Wages within the entire class ? We have just 
criticised Walker in a friendly spirit for attempting to 
draw lines of demarcation within this wide field : can we 
draw any useful ones ourselves less open to criticism than 
his, and riuch as rest Ijack upon fair differences in nature 
and form? Walker makes hw distinctions turn on certain 
peculiarities in the return-services: can we make ours turn 
better and clearer on certain peculiarities in the services 
themselves? We can at least try. Hard and fast lines 
cannot be drawn here, we admit. The exterior lines 
around Commodities and around Services and around 
Credits are each sharp and firm ; and so is the deep-fixed 
circle that includes all three of these alike as Valuables ; 
but within the smaller circles the lines of needful division 
are somewhat more shadowy, though we leave with confi- 
dence to competent Economists the triple lines but just now 
drawn within tlie sphere of material Commodities. 



186 nilNClI'LICS OF POLITICAL EC^ONOMV. 

A nidi! cliissiiiciilioii iuiioii^- '' Liil)oieis," then, yet one 
useful and indeed indispensahlc, may In; made into 
(1) ('oniinon Laborers, (2) Skille(l Laborers, and (o) Tro- 
fessional Laborers. 

Common Laborcn-s are those, whose services may be 
acceptably rendered by an ordinarily competent person 
after a little patient practice and instruction, without any- 
thing corresponding to an apprenticeship as a preliminary 
to their selling their service. V;\v\u hands, teamsters, por- 
ters, waiters, miners, 'longshoremen, railroad laborers, and 
many more belong to this first class. Owing to the ease 
witli whieh this class can be recruited at any time from 
growing boys and emigrating forc^igners and from those 
wlio may have essayed tiic; class above and fallen back, the 
Supply hiui! is kept eonstanlly large relatively to the 
Demand for such serviiics, and eonseciuently Wages are 
always the lowest and steadiest in this lowest class of 
Laborers. 

Skilled Laborers are those, who have had to pass through 
sometliing equivalent to an a[)prenticeship in order to be 
able to offer their services for saki. These, as a class, pre- 
sent some considerable points of difference from common 
laborers. Their numbers are fewer, for the reason, that 
relatively few parents can afford to give their (diildren the 
time and money n(HMirnl for tiiein to h'arn a tra.de, or to 
become skilful in any art recpiiring ])rolong(Hl education ; 
as a residt of tliis lessened i^'css of {'om])etition among 
thems(^lvi's, and because being intclligeid and eonscMpiently 
mobile they luv. able to insist better on their claims and 
distribute themselves to ])oints whei-e their services are in 
more demand ; and because they nvc likely to be subject to 
a stronger Demand than common laborers, on account of 
the close connection of their services with si)eeial accumu- 
lations of Capital; the Wages of skilled laborers will 



PEESONAL SERVICES. 187 

infallibly rule higher than those of common laborers. 
Artisans in general constitute this second class of laborers. 
Professional Laborers are those, who have received a 
technical education, — something more than an apprentice- 
ship, — expressly to fit them to render difficult and delicate 
services to their fellow-men for pay, and who possess 
besides the requisite character and talents and genius to 
enable them to succeed. Clergymen, physicians, lawyers, 
literary men, artists, actors, and many more, render pro- 
fessional services loosely so-called. The obstacles at the 
entrance of this path occasioned by the lack (1) of appro- 
priate natural gifts, or (2) of the requisite industry and 
character, or (3) of the means of suitable education and 
training, practically exclude so many persons, that the 
competition in the higher walks of professional life is not 
such as to prevent a very large remuneration for services 
rendered. The demand for these is often peculiarly intense, 
as well as the supply peculiarly limited. When great 
interests of property, of reputation, of life, are at stake, 
it is felt that the best men to secure these must be had at 
almost any price. Fees and rewards for services of great 
delicacy, of great difficulty, of great danger, are paid by 
individuals and corporations and nations without grudg- 
ing. Comparatively few men reach the highest points of 
excellence in their respective professions, and they have in 
consequence a natural monopoly in these fields of effort, 
and receive for their labor a very high rate of Wages. 
For example, Daniel Webster often took a fee of -flOOO 
for a single plea in court; Paganini, a like sum for an 
hour's playing on a violin ; and Jenny Lind, at least as 
much for an evening's singing in a concert, because there 
was in each case a strong demand for a peculiar service 
and only one person in the world who could render that 
service in the circumstances to the same perfection. But 



188 tBiNCIPLES OF POLITICAL ECONOMY. 

the objections which lie with such force against artificial 
monopolies, cannot be urged at all against a natural monop- 
oly ; for, if the road to excellence be open to all, and no 
artificial obstructions thrown in the way of any, there is 
no blame but rather praise for him who distances all 
competitors, and asks and receives for services of peculiar 
excellence a large remuneration. Exchange rejoices in all 
diversities of advantage that are the birth of freedom, but 
reprobates with all her force advantage that is gained by 
artificial restrictions, because artificial restrictions always 
infringe on somebody's right to render services for a 
return ; and the right to render services for a return is the 
fundamental conception in the Right of Property. 

Is it open for us, to gain a somewhat deeper and clearer 
sense of what that is exactly that is rendered in these three 
classes of personal Services, before we pass to the consider- 
ations which determine in all cases their Value? It is 
plain, that what common Laborers sell for the most part, 
if not exclusively, is muscular exertion of some kind, 
guided by the mind as trained in habit, and aided by 
appropriate implements, all designed to meet the desire 
and so call forth the return-service of the purchaser ; it is 
equally plain, that skilled Laborers with scarcely any more 
exceptions than before sell the same sort of physical exer- 
tions, or motions, this time guided by mental action of a 
higher grade and wider scope, and aided also by more 
elaborate tools working towards the desires and consequent 
returns of a set of buyers more scrupulous and exacting 
than the first set ; and it is plain enough, that some of the 
highest professional services, for instance the surgeon's, 
though not by any means the mass of such services, are 
essentially of the same kind as the two former, namely, 
muscular motions, guided by the most intimate and exact 
knowledge of things, and aided too by instruments the 



tEESONAL SERVICES. 189 

most scientific and expensive. In many of the professional 
services the physical element sinks to a minimum, while 
the intellectual and moral factors come to the front and 
take up the chief attention ; it will be found, however, that 
the physical factor is always present in some degree, as, 
for example, in the counsel's plea before the court, and in 
the physician's visit on his patient ; and in almost all cases, 
if not in all, some implement or other plays its part in the 
process of professional service before it ends, as Cicero 
used a pitch-pipe or tuning-fork to gauge his voice in his 
great pleas for Roman clients. 

Precisely what is rendered, then, in all cases of Personal 
Services in each of their three loose kinds, is muscular 
motion conjoined ivitJi mental effort and both these assisted 
by habit and by some form of what we call Capital. The 
Services are therefore Personal in the highest sense. The 
Mind and Body of the Laborer conspire to render them. 
The most sagacious animal can never be trained to render 
one of them. They are wholly human. Nevertheless the 
muscular part in the rendering — motion and resistance to 
motion — is just what tools and machinery can be made 
to take the place of in large measure but never in whole 
measure, because tools may not be taught to think. It 
may seem sometimes as if machinery were about to take 
the place of human hands in some classes of Production; 
but it will be found in the ultimate issue, as it has been 
found in every stage of the process, that human hands and 
human minds in action are absolutely essential at every 
point of the Exchanges among men. Men are so made 
and Society is so organized, that they need increasingly for 
their comfort and progress the personal services of their 
fellow-men, and can render their own in exchange for 
these ; and consequently, there never can fail (under 
freedom) a Market for Personal Services of the three 
kinds. 



190 PRINCIPLES OF POLITICAL ECONOMY. 

Having now seen as closely as possible what that is 
which is rendered in personal services, let us pass to the 
principles which determine their remuneration. That is, 
we will now inquire carefully into the Value of personal 
services. We have learned already, that Demand and 
Supply in their action and reaction upon each other deter- 
mine in all cases the value of Commodities for the time 
being ; and we shall find it to be equally the dictate of all 
reason, and the outcome of all experience, that Demand 
and Supply decide too in all cases on the value of all Ser- 
vices and all Credits then and there. Shall we look first at 
the considerations that issue in the Deiiiand for personal 
services, and then at those other considerations that limit 
the Supply of them? 

1. Demand is never the mere desire for anything, but 
desire coupled with the ability to pay for it at rates satis- 
factory to the present holder. The Demand for Services, 
therefore, is made by the prospective purchasers of them ; 
and the purchasers, of course, are those who desire them 
and are willing to pay for them at current rates. It will 
be easiest and surest for us to study the Demand for Ser- 
vices in each of the three classes of them in succession. 

(1) The Demand for Common Laborers has several 
points of difference from that for Skilled, and from that 
for Professional, Laborers. It is scarcely ever intense. 
It is mostly disconnected from large accumulations of 
Capital. The desire is usually for immediate gratification, 
without any other end in view. It is frequently for such 
a service, as, if a renderer may not be conveniently and 
cheaply found, one is inclined to do for himself. For 
instances : if the barber be not accessible and reasonable 
and tolerably skilful, a man will certainly shave himself, 
provided he have not yet attained the independence and 
the luxury of wearing a full beard ; and the ordinary 



PEESONAL SERVICES. 191 

housewife, if the cleanly and tractable domestic does not 
come into sight, will do her own work with casual assist- 
ance. It is this important fact, that common services 
among men and women in common life may in many cases 
be dispensed with altogether, and in many other cases sub- 
stitutes be found for them, in connection with the other 
important fact, that common laborers learn their art quickly 
and easily, and consequently are present everywhere in 
large numbers, that makes the Wages of such laborers 
uniformly low. The Demand is moderate and the Supply 
is large. 

(2) The Demand for Skilled Laborers is steadier and 
stronger than for Common, because in general the desire 
for these is not for immediate gratification, but for an ulti- 
mate satisfaction to arise from the commercial cooperation 
of these laborers with their employers, who are capitalists, 
in connection with accumulations of capital, the end in 
view being the production of commodities for sale at a 
proiit. Here comes in a new motive on the part of capi- 
talists to buy the personal services of laborers. The motive 
is simple and intelligible and commendable, but its nature 
and operation is popularly and grossly misapprehended. 

Capital is the result of Abstinence from the present 
use of a Valuable in gratification, for the sake of a future 
increase of it through Production. But Abstinence is 
always irksome in itself. It must have its prospective 
reward in an increase, a profit, or it will never transform 
itself from a mere valuable into a capitalized product. 
Now, the owner of the valuable, having transformed it 
into capital from this motive, is under a commercial neces- 
sity to hire laborers, in order by their help to make his 
capital yield a profit. Capital lying idle decreases in value 
even, to mjj nothing of its yielding no increase to itself ; 
and the motive of the capital-owner, accordingly, is strong 



192 PRINCIPLES OF POLITICAL ECONOMY. 

and constant to buy the services of laborers, to marry 
these services with his own capitalized products, and thus 
to produce commodities for sale, whose value shall be 
greater than the present value of the capital and the ser- 
vices combined. Here we reach in the minds and motives 
of a large class of men an ultimate Demand for laborers, 
and specially for skilled laborers, which is as true and 
constant to its legitimate end of Profit as the needle is 
true and constant to the pole. 

At this point it is very evident, that, if the fair expec- 
tation of the capitalists be realized in a steady profit, and 
the larger the circle of capitalists and the more of capi- 
talized products to each the better for all concerned, the 
Demand for laborers will become steady, and will be likely 
to steadily increase, because there will then be a constant 
motive on the part of all capitalists as such to put back a 
part or all of their yearly profits into capitalized products, 
and thus the Demand for laborers will become more 
intense, and the rates of Wages so far forth must be 
enhanced. The steady Demand for the services of the 
laborers hinges upon the steady Profits of the capitalists, 
and there is no antagonism between the interests of these 
two classes of buyers and sellers, but rather a complete 
identity of interest between them. 

We are looking now solely at what constitutes the 
Demand for laborers of the second class. As always, so 
here, there is Desire first and then a ready Return-service. 
The Desire of employers of this class is for a Profit on 
their capital, and the return-service for the laborers is pres- 
ent as a part of these capitalized products. This part of 
the capital we call Wages-Portion. It is already in hand 
or provided to be in hand when the wages fall due. Of 
course it is expected, that the current wages will ulti- 
mately come out of the current joint-production of the 



PERSONAL SERVICES. 193 

laborers upon the capitalized products set apart for that 
purpose by the capitalist. But if the profits fail to the 
capitalists at the end of that industrial-cycle, whether it 
be two months or twenty-four, then Desire will fail or be 
weakened to hire laborers for the next cycle, and the 
return-services or Wages-Portion with which to pay them 
for another cycle will be lessened of necessity. Both ele- 
ments in Demand are curtailed by the falling-off of Profits. 
There is at the same instant less desire to buy services and 
less ability to pay for them. It is of the very nature of 
capitalized products to wear out in the process of produc- 
tion ; if there be not net profits at the end of the cycle for 
the capitalists, it shall go hard but there will be less wages 
for the laborers during the next cycle. This is not a mat- 
ter of sentiment or of philanthropy, but of eternal law, 
which God has ordained and the devices of men cannot 
frustrate. Capitalists and laborers are joint partners in 
the same concern. Under industrial and commercial free- 
dom their interests are identical. Both are buyers and 
sellers to each other at the same instant; and, as always 
when both parties are alike benefited and satisfied with a 
trade, both will cheerfully and profitably continue the con- 
nection. The Demand of each class for the product of 
the other will continue unabated. Profits and wages recip- 
rocally beget each other. 

But still it is not altogether true, what has sometimes 
been stated by economists, that capitalists are under the 
same sort of pressure to buy their services as the laborers 
are to sell them. Capital is a Valuable already created by 
the mutual desires and efforts of two persons, and is now 
the exclusive property of one of them, and has also been 
set apart by him through an act of will to be thereafter an 
aid to some future production under the motive of a new 
value to accrue thereby. The capital has now become sec- 



194 PKINCIPLES OF POLITICAL ECONOMY. 

ondary to and separated from the person who owns it. He 
very seldom understands the real nature and operation of 
it. He commonly imparts to it in his imagination a more 
substantive and persistent existence than^ it actually pos- 
sesses. He is frequently more or less stuck up as towards 
his neighbors and employees in consequence of his pos- 
session of it. The very fact that he has capitalized it for 
future operations shows that he is independent of it as a 
means of present livelihood. The personal services of the 
laborers, on the other hand, stand in very different relations 
to them. Their personal services may indeed be valuable^ 
but they cannot be cajyitalized. As laborers they have 
nothing else to sell. Unless they sell their services now, 
these have no existence even, still less can they have any 
value. It is only by a mischievous figure of speech, that 
the skill of laborers is sometimes spoken of as their " Cap- 
ital." Therefore, the laborers are under a certain remote 
yet inherent disadvantage as sellers of their personal ser- 
vices, when compared with the capitalists as buyers of 
them. This disadvantage, however, though apparent in 
the nature of things, and under certain circumstances dis- 
astrous to the laborers, may disappear practically under 
another and natural state of things; and it is every way 
to be desired by both classes alike that it should disappear 
in practice. 

Whenever there is a broad and constant and profitable 
market for all the commodities the capitalists and the 
laborers can jointly produce, — that is to say, whenever 
profits are steady and remunerative and wages are high 
and growing in their purchasing-power, — the Demand for 
skilled laborers must always be such as puts the laborers 
on a footing of equality as over against the capitalists, 
because under such circumstances the purchasers of ser- 
vices are many and eager, two bosses will be likely to be 



PERSONAL SERVICES. 195 

bidding for one skilled laborer, and then wages are always 
growing in dollars and eacli dollar growing in effective 
purchasing-power. 

It is of the last importance in this connection to notice, 
that everything in Profits and Wages turns in the last 
resort upon the breadth and freedom of Mari^ets. It is 
out of the return-service received from the sale of the 
commodities produced jointly by the capitalists and labor- 
ers, that both wages and profits must ultimately be paid. 
There is no other possible source of them. When the 
Market fails, everything fails that leads up to a market. 
Particularly fails the Demand for laborers for the next 
industrial cycle, and of course drops also the prospective 
wages for that cycle. The public folly and universal loss 
of shutting off foreign markets for our own commodities 
by lofty tariff-barriers, as has been conspicuously done by 
the United States for thirty years past, follows of course 
from this radical truth ; and the Wages of laborers, instead 
of being lifted by tariff-taxes, as has been so often falsely 
and wickedly asserted, are inevitably depressed by them, 
because they effectually forbid to capitalists and laborers 
their best and freely chosen markets for the sale of their 
joint products. 

Another vastly important matter, constantly affecting 
the Demand for laborers of the second class, is the Com- 
petency or otherwise of the practical managers of the 
Capital invested in industrial enterprises. Capital cannot 
manage itself. It is of itself wholly inert. It is always 
either a Commodity or a Credit. Conscious of their ina- 
bility to handle wisely their own bits of Capital, or else 
taught it through a bitter experience, by far the larger 
number of individual owners of it loan it to others to 
manage ; they invest it in some industrial corporation, in a 
bank or a mill or a railroad. Some one person, or at least 



194 PRINCIPLES OF POLITICAL ECONOMY. 

ondary to and separated from the person who owns it. He 
very seldom understands the real nature and operation of 
it. He commonly imparts to it in his imagination a more 
substantive and persistent existence than, it actually pos- 
sesses. He is frequently more or less stuck up as towards 
his neighbors and employees in consequence of his pos- 
session of it. The very fact that he has capitalized it for 
future operations shows that he is independent of it as a 
means of present livelihood. The personal services of the 
laborers, on the other hand, stand in very different relations 
to them. Their personal services may indeed be valuable, 
but they cannot be capitalized. As laborers they have 
nothing else to sell. Unless they sell their services now, 
these have no existence even, still less can they have any 
value. It is only by a mischievous figure of speech, that 
the skill of laborers is sometimes spoken of as their " Cap- 
ital." Therefore, the laborers are under a certain remote 
yet inherent disadvantage as sellers of their personal ser- 
vices, when compared with the capitalists as buj^ers of 
them. This disadvantage, however, though apparent in 
the nature of things, and under certain circumstances dis- 
astrous to the laborers, may disappear practically under 
another and natural state of things; and it is every way 
to be desired by both classes alike that it should disappear 
in practice. 

Whenever there is a broad and constant and profitable 
market for all the commodities the capitalists and the 
laborers can jointly produce, — that is to say, whenever 
profits are steady and remunerative and wages are high 
and growing in their purchasing-power, — the Demand for 
skilled laborers must always be such as puts the laborers 
on a footing of equality as over against the capitalists, 
because under such circumstances the purchasers of ser- 
vices are many and eager, two bosses will be likely to be 



PEESONAL SERVICES. 195 

bidding for one skilled laborer, and then wages are always 
growing in dollars and each dollar growing in effective 
purchasing-power. 

It is of the last importance in this connection to notice, 
that everything in Profits and Wages turns in the last 
resort upon the breadth and freedom of Mari^ets. It is 
out of the return-service received from the sale of the 
commodities produced jointly by the capitalists and labor- 
ers, that both wages and profits must ultimately be paid. 
There is no other possible source of them. When the 
Market fails, everything fails that leads up to a market. 
Particularly fails the Demand for laborers for the next 
industrial cycle, and of course drops also the prospective 
wages for that cycle. The public folly and universal loss 
of shutting oft" foreign markets for our own commodities 
by lofty tariff-barriers, as has been conspicuously done by 
the United States for thirty years past, follows of course 
from this radical truth ; and the Wages of laborers, instead 
of being lifted by tariff-taxes, as has been so often falsely 
and wickedly asserted, are inevitably depressed by them, 
because they effectually forbid to capitalists and laborers 
their best and freely chosen markets for the sale of their 
joint products. 

Another vastly important matter, constantly affecting 
the Demand for laborers of the second class, is the Com- 
petency or otherwise of the practical managers of the 
Capital invested in industrial enterprises. Capital cannot 
manage itself. It is of itself wholly inert. It is always 
either a Commodity or a Credit. Conscious of their ina- 
bility to handle wisely their own bits of Capital, or else 
taught it through a bitter experience, by far the larger 
number of individual owners of it loan it to others to 
manage ; they invest it in some industrial corporation, in a 
bank or a mill or a railroad. Some one person, or at least 



190 I'KlNCll'LES OV POl.rriCAL ECONOMY. 

a smiiU body (,»! persons, must piai'tically manago now all 
specitic accuinulations of capital. It is they in their 
capacity ol" nianipulating-capitalists, who constitute in 
large measure the Demand for laborers. Eiit such man- 
ageis, \vho are at once skilful and long-headed and honest, 
do not grow upon a chance bush. They are rare. Most 
of them in this country at least have been those, who 
started in a small way in the control of their own earned 
or small-inherited properties, and rose through practice 
and knowledge and conscience to the ability to handle 
prolitably to all concerned large masses of Capital. In 
the hands of such men, given a tolerable chance by pub- 
lic law and private circumstances, both Profits and Wages 
are sure to come in satisfactorily. They are Cai)tains of 
Industry. They are an honor to human naturt\ 'i'hey 
are a blessing to the Avhole connnunity. They have no 
need and no will to ask to be bolstered up in their business 
by unjust taxes enforced upon a whole people. 

Such men sometimes have sons or prot^i/^n, who possess 
similar capacities and similar integrity, and these by ex- 
perience become able to carry on the business to similar 
successful issues. This is happy, but it is unusual. JNIore 
connnonly, in the second, and pretty certainly in the third, 
p-eneration, the line of roval succession fails. There comes 
in a lieutenant rather than a captain (^f Industry. Likely 
enough he mistakes the nature i>f capital, and thinks that 
it will go along of itself without that eternal vigilance 
that is the one price of its maintenance and increase ; 
likely enough he hn-ks the touch and rule of men, and his 
laborers become demoralized and refractory ; more likely 
still he thinks he sees other operators around him getting 
quicker rich by speculating in enterjnises outside the 
legitimate business, and takes some of his own and of 
what is not his owai and throws it out of its proper chau- 



PERSONAL SERVICES. 197 

nels ; and, as the result of one or all of these, things soon 
go wrong, profits and wages fall off, poor work is done 
and finds slow sale, and Demand for laborers (which is 
their life-blood) slackens or goes out in that establishment. 
No wonder the Paper-makers in their annual gathering at 
Saratoga of 1889, resolved as the main outcome of their 
meeting, that they would bring up their sons (or some- 
body's sons) to succeed them in their business by a thor- 
ough practical training in the paper-mill itself, beginning 
early and continuing long. Industrial higher education in 
this or some other form is the secondary hope of manufac- 
turing business in the United States, the primary hope 
being in a decent commercial liberty to buy their supplies 
and to sell their products in the best markets wherever 
these are to be found. 

There is one other important item that bears directly 
upon the Demand for laborers of the second class, and 
consequently uj)on their Wages, namely, the constant 
introduction of more and better Machinery. At first blush 
it would seem, and it has often been stated so, that the use 
of machinery takes just so much work from human hands, 
reduces by so much the Demand for laborers, and tends to 
lessen by so much their wages. All this is the opposite of 
the truth; but before we explain why it is the opposite 
of the truth, let us attend carefully to the truth itself, as 
stated in 1889 by the highest living authority on these 
special points. Sir Edwin Chadwick, the octogenarian 
pioneer in sanitary and economic reforms. Fifty-six years 
ago Chadwick joined with liis colleagues of the English 
Factory Inspection Board in recommending reduced hours 
of labor and other improvements which have now become 
general in England. In a paper recently read before the 
Political Economy Club, he calls attention to the greatly 
increased production which follows improved machinery 
and shortened hours. 



198 PRINCIPLES OF POLITICAL ECONOMY. 

He says: ^''Spinning machines ivhich formerly turned 
8000 in a minute^ now turn 11,000 ; and in Lancashire not 
more than half the hands are now employed to produce the 
same amount with new machinery as were employed on the 
machinery of 1833. As an example of the extent of the reduc- 
tion of hands by these improvements^ it may be mentioned 
that one large family of cotton spinners in 3Ianchester, which 
40 years ago employed 11,000 hands, could not noiv muster 
one half that number. Yet the mill population has 

INCREASED, AS WELL AS THE GENERAL POPULATION, THE 
HANDS DISCHARGED BEING ABSORBED IN OTHER EMPLOY- 
MENTS. At the beginning of the century the cost of spinr 
ning a pound of yarn was a shilling. The pound of that 
same yarn is noiv spun for a half-penny by hands earning 
double tvages for their increased energetic attention and skill. 
It is noiv found, however, that the strain of the increased 
responsible attention cannot be so long sustained as the slotv, 
semi-automatic jyace by the old loorhing of the old mills ivith 
the long hours. Hence there is a tendency to a further vol- 
untary reduction of the working ho^irs in the best mills, first 
to nine hours. In one mill, in which 2000 men are employed 
a voluntai'y reduction has been effected to about eight hours 
with a more equable production; and I have heard of other 
examples. As shoiving the cost of working with inferior 
hands and loose regulations, a recent report from the Man- 
chester Chamber of Commerce states that 20s. worth of bun- 
dled yarn may be produced at a cost of from 2d. to Sd. per 
pound less in Manchester than in Bombay, notwithstanding 
the hours of working are 80 hours per week, while in Man- 
chester they are only 50. At the present time Lancashire, 
with its short hours, will meet Crermany or any other country, 
in neutral markets, in the ivorld. In Germany the spinners 
and weavers still work 13 hours a day as they once did in 
England ; France has only come down to 12 hours ; whereas 



PERSONAL SERVICES. 199 

the English rate has long been 10 hours, and may soon he 9 
or even 8. A^id this reduction improves the- health of the 
wage-workers, ivhile the reduced cost of production allows 
them higher wages; yet Grermany with its long hours and 
high tariff maintains a system OF LOW PAY, DEAR produc- 
tion, HIGH COST OF DISTRIBUTION, AND LIMITED SALES." 

The accuracy of these important statements of fact is 
confirmed on every hand. Committees of British spinners 
and weavers have repeatedly visited the United States, and 
then reported to their fellows at home, that wages, all 
things considered, were equal for spinners and weavers in 
Great Britain and the United States, and in some cases and 
respects higher in the former. Many times before his late 
lamented death, John Bright publicly testified that wages 
in England during his parliamentary life had risen in 
general 50%, and in some of the manufacturing lines 100%. 
A few months' before these statements of Chad wick were 
made, Sir Richard Temple reported to his section of the 
British Association, " That the average earnings per head in 
the United Kingdom, taking the whole population without 
division into classes, is X35, 4s., and exceeds the average of 
the United States, which is £27, 4s., and of Canada, which 
is £26, 18s., and of the Continent, ivhich is XI 8, Is.; ivhile it 
falls below that of Atistralia, ivhich is £43, 4s. per headr 

According to this, the average earnings in Great Britain 
per head of the population are 30% higher than in the 
United States, and 81 % higher than on the Continent 
of Europe. Truly, Britain is a prosperous and profitable 
country so far as average earnings of the whole people 
by the year is concerned. Sir Richard goes on in the 
same statistical paper to show, that the average annual 
profit on British Capital is 14%, and that Capital yields 
about the same rate for the United States. 

Now, can we easily give the grounds on which the 



-00 ruiNcnrLES of political economy. 

introihu'tion o( mow and botti'V iniU'liiiuMV, instead of 
displaoino- laborers, tends to lift anil aelnally does lift the 
wages of those eoneerneil, who eontinne to work with their 
hands and heads? We will trv it. 

(a) It takes the hands and heads of laborers to invent 
and eonstruet and keep in repair the niaehinery itself, that 
is often supposed to displaee laborers, and so far forth 
opens a vent for the more profitable eniiilovnient of some 
of the laborers, who before performed the eruder and more 
repetitive and autoniatie parts of the proeesses, whieh 
part« alone marhini>rv can be made to perform. 

(b) Maehinerv always lessens the iHvst of a given amount 
of produetion, otherwise there would be no motive t\>r its 
introduetion. l>ui, other things being eipial, the lessened 
eost of a eommodity britadens the market for its sale. 
The eheaper a useful eommodity is olVereil, the more the 
buyers of it the wm'ld over. The nun-e and the bet- 
ter the niaehinery brought in, the more and the eheaper 
the eommodities produeed and the bnvuler and better the 
markets to be supplied: and, tluMi'fore, the more ami 
the more skilful the hands needeil to tend the maehinery 
and to market the prixluets. 

(c) The more eommodities thus ereated by men antl 
maehines, and the wider the markets found for them over 
the earth, the more laborers are required to extraet and 
prepare and transpm-t the raw materials I'm- the uow 
augmenting eommodities, and also to shi}> and distribute 
the tinished produets. As Chadwiek says, notwithstanding 
the strietly faffor// hands have diminished one half in one 
plaee, "yet the )iiiU po]mlation has ini-reased, as well as 
the general })0{nilation, the hands disi'harged being absorbed 
in other employments." 

(d^ These improvements in maehinery, and the conse- 
quent refinements in ihe skill of tlu- lalnners, cheapen also 



IM5RSONAL SERVICES. 201 

of course the commodities consumed by the laborers 
themselves, and. therefore a given rate of wages, to say- 
nothing of a rate sure to enlarge under these circumstances, 
now secures for the laborers a higher grade of comforts. 

More and better and more durable machinery, conse- 
quently, so far forth, tends at once to enhance the rate of 
laborers' wages and increase the purchasing power of the 
unit in which wages are paid. 

To return now to the main line of discussion under the 
present head, we have shown by proof positive that there 
is nothing either in new machinery introduced, or in higher 
wages paid in connection with such machinery, or in 
shortened hours made possible by these two, to lessen the 
Demand of Capitalists for the personal services of Labor- 
ers ; because, there is nothing in all these, commercial and 
industrial freedom being presupposed, to lessen the Profits of 
the Capitalists, which profits are the sole motive actuating 
them as such. That high wages and short hours are rather 
an advantage to Profits in connection with skilled laborers 
and fine machinery, than a disadvantage when compared 
with long hours and low pay and poor implements, is 
clearly shown by Chadwick in the passage quoted comparing 
England with English Bombay, where the working hours 
are 60% more and the wages greatly less and the cost of 
the machinery very little ; " twenty shillings' worth of 
bundled yarn may be produced at a cost of from Id. to 
3t?. less in Manchester than in Bombay"; call it 2-^c?. less; 
that is, it costs the Bombay spinner more than 1% per 
pound of yarn more to spin it than it costs the Manchester 
spinner ! For truth and decency's sake, then, let us have 
done with the gabble in this country about the advantages 
of " pauper labor " over skilled, of low wages over high, 
of cheap machinery over dear ! 

The penetrating reader will perceive, that the root of 



202 PRINCIPLES OF POLITICAL ECONOMY. 

this whole matter lies in the breadth and quickness of the 
Markets, in which the commodities produced by the laborers 
and capitalists may be sold against other commodities, and 
against Services and Credits; if the markets of the world 
are free to all to buy in and to sell in, which seemingly two 
things are precisely one and the same thing, then the De- 
mand of Capitalists for the services of laborers to create and 
market salable commodities wherever these may be wanted, 
can apparently never slacken on the whole ; because, the de- 
sires of men which the efforts of other men may satisfy com- 
mercially, are indefinite in number and unlimited in degree ; 
and, therefore, the Wages of the skilled laborers, the com- 
mercial freedom of the nations being presupposed, are likely 
to be on the whole on a steady rise throughout the world ; 
and the amount and excellence of the machinery on a 
similar rise, since Capitalists can always under these cir- 
cumstances see their Profits looming up ahead of them, — 
the profits of an endlessly diversified and marketable Pro- 
duction. 

The chief reason at any rate, and almost the only rea- 
son in common sight, why little England has surpassed in 
commercial prosperity of every sort every other nation on 
the globe during the past forty years, as evidenced by 
these statistics of Sir Richard Temple and other abounding 
proofs on sea and land, is in the fact, that her statesmen 
of the last generation came to perceive clearl}^, and then 
helped the people to see, that a market for products is prod- 
ucts in market ; that her traditional tariff-barriers to keep 
foreign goods out kept in equally domestic goods that 
wanted to get out for a profit, and so down went the tariff- 
barriers little by little, accursed alike by God and English- 
men, never to be set up again around the shores of the land 
of Cobden and Bright and Elliott ; and to-day we read, that 
the average annual Earnings per head of the entire popu- 



PERSONAL SERVICES. 203 

lation of the United Kingdom, men and women and chil- 
dren, English and Irish and Scotch, are $176, while the 
annual average Profits of Capital within the three king- 
doms is 14%. 

(3) In the last place here, we must now look at the 
Demand for the personal services of Professional laborers. 
These are persons, who have done something more with 
reference to their life-work than serve an apprenticeship to 
a trade, or acquire some mechanical skill in connection with 
some kind of machiner3^ An Education rather than an 
Apprenticeship is implied in Professional laborers. Knowl- 
edge of the bodies and of the minds of men ; acquaintance 
with some one section at least of the general laws that per- 
vade the universe ; some confidence (the more the better) 
in God, who created and governs the Avorld ; are all requisite 
to a reasonable success on the part of Professional laborers. 
The Demand for their services, and of course also the 
Return made to them for such services, will largely depend 
on such superior knowledge and confidence acquired by- 
such persons, and involved in their services. Clergymen, 
physicians, lawyers, statesmen, literators, actors, teachers, 
and scientific experts, may serve as our chief examples of 
Professional laborers. 

(a) "All that a man hath will he give for his life." 
When men fall sick, or those fall sick who are dear to them, 
they send for the doctor. Scarcely any trait of human 
nature is more universal than this. And the trait puts 
honor on human nature, because it implies a relatively 
high estimate of the worth of life in the mind of the 
patient, and also a relatively high confidence in a certain 
class of one's fellow-men. As Society progresses, and as 
Christianity deepens the sense of the worth of the indi- 
vidual life, and knits a stronger tie of confidence between 
man and man, a change is slowly coming over the rela- 



204 Principles of political economy. 

tions between physicians and their patients ; people do not 
wait to fpJl sick before they send for the doctor, so much 
as they formerly did ; some individuals and families are 
establishing connections with a medical adviser, who 
studies their constitutions and habits of life beforehand, 
guides them in general sanitation, and thus both he and 
they are better ready for curatives in times of illness. 
Gladstone has long had such an attendant, with the best of 
results as he thinks, and strongly commended such action 
to John Bright, but too late to save the latter from what 
was thought to be premature death in consequence of im- 
prudent and ill-advised handling of his health. In a few 
cases in England and the United States an annual salary 
is paid a physician for general care of the family's health, 
whether sickness befall or not, instead of the more usual 
fees on consultation and attendance. Dr. Munn of New 
York receives such an annual salary from Mr. Jay Gould. 
But in whatever way medical services are paid for, the 
Demand for them is constant and intense. The motive to 
buy them is immediate and personal, not mediate and 
remote, as in the case of capitalists and laborers of the 
second class. 

It is to be noticed further in respect to physicians, and 
indeed in respect to all professional laborers much more 
than in respect to other laborers, that much knowledge 
has been gained by them for its own sake, out of pure love 
for it, rather than for the sake of merely selling their ser- 
vices as laborers ; while this does not diminish in the least 
the commercial character of their services, it tends to 
beget on the part of the buyers of them a stronger confi- 
dence in the men who render them, so that the Demand 
for such services and consequently the pay for them is 
enhanced by the trust reposed in the laborers on the ground 
of something acquired by them for other than selling pur- 



PERSONAL SERVICES. 205 

poses, and which indeed cannot be sold; and superior char- 
acter also, as well as superior knowledge, which is wholly 
moral in its basis and not mercantile at all, affects the 
Demand for the services of the possessor of it to increase it, 
on the ground of a naturally stronger trust in him as a pro- 
fessional laborer, and at the same time tends to increase 
his Wages by limiting the circle of those who can offer in 
competition such services on the background of such supe- 
rior knowledge and character. 

(b) Lawyers do not meet such a universal Demand in 
the nature of things as do physicians. Said Jonathan 
Smith of Lanesborough in the Massachusetts Convention 
of 1788 : " We have no lawyer in our town, and we do 
well enough without." Still, one hundred years after that 
time there were about 70,000 lawyers in the United States, 
and Lanesborough itself had had in the meantime at least 
three distinguished ones. The interests of property and 
of reputation, and the constitutional rights of individuals 
as over against the claims of Government, so far as these 
may be conserved through the agency of lawyers, are by no 
means so constant and imperative as are the interests of 
life and health. Yet lawyers are in legitimate request in 
all civilized countries. A Latin legal maxim announces 
the obvious truth : It is the interest of the Commonwealth 
that there should he an end of disputes and litigations. 
Beyond question courts and counsel are wholesome on the 
whole for the individual and for the commonwealth. But 
the extremely complicated and unsatisfactory condition of 
American Law at present, owing to the fact that we have 
a none too simple United States Law with its three grades 
of courts and judges, and considerably divergent bodies of 
Law in each of 42 States, and owing also to the fact that 
our law in general is drawn almost at random from two 
pretty distinct Sources, the Common Law of England and 



206 PRINCIPLES OF POLITICAL ECONOMY. 

the Civil Law of Rome, multiplies the number of lawyers 
relatively to the population out of all proportion to such 
ratio in other countries, and tends to make the lawyers as 
a class too conservative of old and drawn-out processes to 
the extent of opposing obvious betterments and simplifica- 
tions. Said David Dudley Field, President of the Ameri- 
can Bar Association, in August, 1889, at Chicago: '■'So 
far as I am aivat'e, there is no other country calling itself 
civilized ivhere it takes so long to punish a criminal, and so 
many years to get a final decision hetiveen man and man. 
Truly we may say, that Justice passes through the land on 
leaden sandals. One of our most trusttoorthy journalists 
asserts that more murderers are hung hy mohs every year 
than are executed in course of law. And yet we have, it is 
computed, nearly 70,000 lawyers in the country. The pro- 
portion of the legal element is, in France, 1 : 4762 ; in Grer- 
many, 1 : 6423 ; in the United States, 1 : 909. JSfotv turn 
from the 'performers to the performance. It appears that 
the average length of a lawsuit varies very much in the dif- 
ferent States ; the greatest being about 6 years, and the least 
\\. Very few States finish a litigatio7i in this shorter period. 
Taking all these figures together, is it any ivonder that a cynic 
should say that we American lawyers talk more and speed 
less than any other equal number of inen known to history ? " 

Mr. Field then repeated his well-known argument for 
Codification, ascribing the law's delays to the chaotic con- 
dition of the law, and maintaining that it is the first duty 
of a government to bring the laws to the knowledge of 
the People. " You must, of course, be true to your clients 
and the courts, hut you must also give speedy justice to your 
fellow-citizens, more speedy than you have yet given, and you 
must give them a chance to know their laivs.^^ 

Owing to the immense difficulties in the w\ay of any 
one person mastering the various branches of the law in 



PERSONAL SERVICES. 207 

this country, it is falling more and more into specialties, 
and lawyers are devoting themselves to some one of its 
many branches, the main division line being between 
'•'•Law" and "Equity" technically so-called; and when- 
ever one becomes eminent along any line, his compensation 
is apt to be very large owing at once to a large Demand 
and to a small Supply at that point, while the average 
compensation of the lawyers as a whole class is meagre 
enough, because there are too many of them, and the peo- 
ple have become very suspicious of the law's meshes and 
delays. 

(c) The grounds for the unabating Demand in Christian 
countries for religious teachers and preachers, let us rather 
say, for spiritual guides, lie deep down in the nature of 
man. If there be one proposition about men more incon- 
testable than another, it may be this, that men are made in 
the image of God, and that there is among men in general 
an irrepressible striving to maintain and deepen this image. 
The touch between man and man and between man and 
God is such at this point, that men can help each other in 
this striving, and that they feel that they can help each 
other. This is the chief reason why some men are con- 
stantly consecrating themselves to the Christian ministry, 
and other men as constantly soliciting these to become 
their pastors and teachers. Those more enlightened in 
divine things and more spiritually minded offer themselves, 
as it were, not commercially but morall}^, to the unenlight- 
ened and less advanced as guides and helpers. It is, as it 
was with Wolfe and his men at the Heights of Abraham : 
those who got first to the top tarried a little to help those 
up who came after. And the most striking thing about it 
is, that the masses of men at bottom are as desirous to be 
uplifted as the choicer spirits among them are desirous to 
help the work forward. Ministers are still, and always 



210 PRIKCIPLES OF POLITICAL ECONOIVIY. 

more eagerly, by one man than by the many men con- 
cerned : it is not. Still less does it mean " a 7nan on horse- 
hack.'''' But it does mean this : a Nation (as the very 
name implies) is made up of the thoughts and hopes and 
throbbings and dim forecastings and half-formed purposes 
of multitudes constituting a unit (born together for one 
destiny on earth) ; and the true Statesman is one of them- 
selves, sharing with them at once the traditions of the past 
and the perspectives of the future ; one, with the instinct 
and the intellect to gather up and embody the general 
feeling and the general will ; one, who has gained in some 
way the confidence of the masses who are willing for the 
time being to entrust to him the guidance of their affairs, 
and to empower him to plan and act for them as their 
champion and deliverer ; and one, who (because he is one) 
can better seize the propitious moments for declaration and 
negotiation and public action, yet who never forgets that 
he is nothing but an agejit for others, and is as ready to 
lay down responsibility at the public will as to assume it 
at the public will. 

Washington was such a statesman, and Lincoln, Even 
Bismarck, under monarchical and later imperial environ- 
ment, disclaims anything substantive and original in his 
own action: he did what he could not help doing: he 
followed the instincts of Prussia, and his own ; and became 
the means of fulfilling as they gradually ripened the long- 
ings of the other German people for unity and order. 
Such a statesman Avas Chatham in England, and Cavour 
in Italy. Now, such services as these, done for a whole 
people, always deserve and usually receive, though not 
expressly bargained for beforehand, yet implied in the 
public devotion of one party and the general consensus of 
the other, extraordinar}^ honors and emoluments. This is 
right, even on purely Economic principles. The services 



PEKSONAL SERVICES. 211 

of great statesmen to their country in great epochs and 
emergencies are at once a gift and a sale, they are both 
patriotic and economic, there is equally a national Demand 
for them and a grateful recognition of them, the Supply is 
always exceedingly rare and the reward often exceedingly 
great ; and it is to be put down to the lasting credit of 
the science of Economics, that its peculiar motives and 
results may mingle in and harmonize with the motives and 
results of the higher moral impulses, such as those of 
Patriotism and Religion, as in the cases of the Soldier and 
Statesman and Clergyman. There was no rational ground 
for the hesitation of Garibaldi to receive from the Par- 
liament of Italy in 1875 an annual pension of 50,000 lire. 

(e) There is a single class more of Professional laborers, 
loosely so-named, which should be noted before we dismiss 
the subject of Demand for laborers to pass to consider the 
Supply of them, namely, Literators and Artists and Actors 
of the highest rank. Statesmen primarily serve the indi- 
vidual nation that selects and rewards them, though their 
influence may indirectly uplift other nations also ; but the 
great Writers and Painters and Actors, whatever may be 
their local habitation and name at first, soon come to 
belong to the world at large and to derive their revenue 
from many lands, because the highest Art is cosmopolitan 
in its own nature, and the best characterization of men as 
such cannot but be the property of Mankind. Shak- 
speare is no longer English, nor Angelo Italian, nor Mozart 
German, nor even Bernhardt French. Deep as are the 
scars and the sea that separate nation from nation, there 
is something deeper still in the innate recognition by man 
of man as depicted by the great Masters in immortal lines. 
There is, accordingly, a sort of Demand in the inmost soul 
of Humanity as such for these living and lofty touches and 
delineations of itself, whencesoever they may come. There 



212 PRINCIPLES OF POLITICAL ECONOMY. 

is not indeed nor can there be, as in most other cases of 
sale, a bargain made beforehand between these preordained 
sellers of the rarest services and their silent yet waiting 
purchasers, yet there is after all an antecedent and an 
assured understanding between them. They are in touch 
even across the sea. The master strikes his chord, and 
the audience, tit, though few and scattered, listens and 
applauds and makes return. 

Is the principle of "International Copyright," so-called, 
correct? l-rct us look narrowly before we pronounce. At 
present this good country of ours makes itself a mocking 
and a bj^-word even to its owji intelligent and art-lov- 
ing citizens by putting a tariff-tax of oO% on paintings 
and statuary by foreign artists, not at all to get revenue 
thereby, but to "■ protect " domestic artists in their inferior 
work by artificially lifting the price of their wares. So far 
is carried this jealousy of foreign works of art, that when 
the artists generously loan them for exhibition on our 
national occasions, they are put under bonds not to sell 
them on this side without previously paying the tariff-tax, 
which is graciously intermitted during the Exposition. 
This is Restriction. This is Protectionism pure and sim- 
ple. This is legally excluding the Better in order to give 
a forced currency to the AVorse. Now, domestic Copy- 
right restricts the sale of any book to one publisher in his 
interest and in that of the author. The book now in the 
reader's hand is thus copyrighted. This legal arrange- 
ment between authors and publishers and their public may 
be perhaps logically defended, it may even be for the 
public weal on the whole, though in manj' cases it doubt- 
less raises the price of good books, which would have been 
published without any such artificial encouragement. The 
copyright, hoAvever, like all patent-rights also, soon expires 
by limitation of time, and the [)ublic thereafter have the 
unrestricted use of ^\■hat is really their own. 



PERSONAL SERVICES. 213 

For what is sometimes called " literary property " is not 
property in the strict sense of the word. A book is not 
like a plough or a house. Its contents even when most 
original have been but colored, as it were, and rearranged 
and reinforced by the author's individual mind. Its sub- 
stance always comes out of the common stock. It cannot 
be the author's own, as the bushel of wheat is the farmer's, 
who sowed the seed on his own land and threshed it in 
his own barn and carried it to market in his own wagon. 
The rights of the individual and the rights of the Com- 
munity commingle more or less in private property of 
every kind, at least to the extent that the latter may tax 
the property if needful for the common wellbeing, as it is 
bound also legally to secure it to the owner when threat- 
ened by others ; it is no j)art of the purpose of the present 
book to draw the wavering line in general between the 
rights of individuals and the rights of their Government 
as towards them ; but the distinction between common 
property and copyrighted property is plain enough to 
everybody, and the Law puts emphasis on the distinction 
by making the one quickly terminable and the other con- 
tinual. So then, when the Government under which the 
author resides, has given him a limited copyright within 
its own jurisdiction, it would seem as if the individual 
right in the premises had been sufficiently recognized 
alongside of the undoubted right of the Whole to the 
ultimate use of the labors of their own citizen. 

When, however, it comes to International Copyright, 
which is an attempt to secure to authors of one country 
artificial privileges under restriction in selling their wares 
in all other countries, the argument breaks down. Even 
for the one country, in which the author lives and is tax- 
able, the argument is not very strong, and hardly binds 
advanced public opinion either as to the grounds of it or 



214 PRINCIPLES OF POLITICAL ECONOMY. 

even the practical benefits of it on the whole. By the 
attempted extension of it to all countries, its reasonable- 
ness disappears. Taxation cannot extend beyond the 
jurisdiction of the country taxing ; and it certainly seems 
as if a legal privilege, beyond common law privileges, 
ought not by extension through the formal action of other 
countries to exempt from taxation (in case it were need- 
ful) the results of the original privilege. The purpose 
of International Copyright is not the blessed one as an- 
nounced to the world by James Smithson, '■'•the increase 
and diffusion of knowledge among mankind,'''' but directly 
and artificially by means of legal restrictions the "increase " 
of the prices of books and of other " knowledge " to the 
masses of " mankind," and the " diffusion " of these extra 
prices as between authors and publishers. Protectionism 
does not seem to be one whit more respectable in this 
form than in the form of tariff-taxes on foreign works of 
art. 

2. We have already seen in our first chapter the proofs 
of the proposition, that the Value of anything whatsoever 
bought and sold is determined by the Demand for it and 
the Supply of it then and there present. Also we have 
now seen at considerable length the main phases and 
grounds of the Demand for each of the three classes of 
Personal services bought and sold among men. The next 
topic in order is the Supply of personal services in the 
various markets. Here it will not be necessary to distin- 
guish particularly the three classes of Services, inasmuch 
as the circumstances governing the Supply in each are 
substantially similar. 

In Economics generally we have to deal chiefly with 
Persons, and only subordinately Avith Things; when we 
come to the Supply of personal services, answering to 
the Demand for them on the part of other persons, this 



PERSONAL SERVICES. 215 

point becomes conspicuous ; and it is here, if anywhere, 
within the reahn of our science, that we need to devote 
a word to a singular doctrine, that has been famous 
for nearly a century under the term of Malthusianism. 
Thomas Robert Malthus, 1766-1836, was an English 
clergyman and teacher, a wide traveller and keen observer 
of men, one who divided his time during a long life 
between cure and chair and the libraries of the Univer- 
sities, published in 1798 his " Essay on the Principles of 
Population as it affects the Future Improvement of Society'''' ; 
in this and in subsequent editions enlarged and eni-iched, 
he brought out with its proofs the core of his startling 
pronouncement, that the human race is found to increase 
in numbers in something like geometrical progression, 
while the means of subsistence for them on any given 
area of agriculture can only increase in something like 
arithmetical proportion ; the United States was then doub- 
ling its population in 25 years, and he calculated that, at 
this rate, the inhabitants of any country in five centuries 
would increase to above a million times their present 
number, which would give England in that time more 
than twenty million millions of people, or more than 
could even get standing-room there; for this natural ten- 
dency of the law of human fecundity to outstrip the results 
of the law of returns from land, he saw no remedy except 
in checks to population, which he divided into the positive 
and the preventive, the first of which, such as war and 
famine and disease, increase the annual number of deaths ; 
and the second of which, such as prudence in contracting 
marriage and temperance after marriage, diminish the 
number of births ; and Malthus and his followers, among 
whom the famous Thomas Chalmers was prominent, were 
at great pains to inculcate upon the laboring classes the 
duty of later marriages and fewer children, as an indis- 



216 PRINCIPLES OF POLITICAL ECONOMY. 

pensable condition of their rise in comforts, and of " the 
future improvement of Society." 

These discussions have attracted great attention almost 
to the present day, and have been supposed to be very 
pertinent to the subject of wages, and thus to be an 
important part of Political Economy ; but when one looks 
more closely, the force of that spring of population which 
the Creator has coiled up in the nature of man, as 
contrasted with the weakness of that power by which the 
earth brings forth sustenance for man, is seen to be a 
topic in Physiology and not in Political Economy at all. 
Political Economy presupposes the existence of Persons 
able and willing to make exchanges with each other, before 
it even begins its inquiries and generalizations. How they 
come into existence, the rate of their natural increase, and 
the ratio of this increase to the increase of food, however 
interesting as physiological questions, have clearly nothing 
to do with our Science. Each adult human being is as 
much constituted by Nature to receive personal services as 
to render them, in Economics each without exception 
receives when and because he renders, and all alike are 
naturally able to become capitalists also; economical laws 
present no obstacles, that we can see, to all men becoming 
rich^ as we use that term ; the town or city in which many 
people are growing rich simultaneously, is the best place in 
the world for other people to go to get rich in, and not at all 
towns in which other people are getting poorer ; most men 
are unwilling, some perhaps may be unable, to fulfil the 
moral conditions of growing rich; while, we may depend 
upon it, the famines of the world have been caused more 
by the indolence and want of foresight of individuals, and 
especially by the monstrous maladministrations of Govern- 
ments, than by any law of the increase of population. 

Experience too has shown, that the strong impulse in 



PERSONAL SERVICES. 217 

mankind towards procreation is not too strong for the 
purpose intended by the Creator; that He who is the 
author of the impulses is author also of natural counter- 
workings of them; that, as men under moral and religious 
training come more and more under the influence of reason 
and affection, the preventive checks to population come 
silently and effectually into operation; and that, taking 
the world at large, food and comforts have more than kept 
pace with the stride of population, since its inhabitants as 
a whole were plainly never so well fed and clothed and 
housed as now. The abstract antagonism of the law of the 
increase of population with the law of the increase of food, 
or Vv^hat we prefer to call the law of diminishing returns 
from Land, may be admitted, if one chooses to insist on it ; 
but any practical tendency of these to come into collision, 
as the world is and is to be, is confidently denied. When 
Malthus wrote, and long afterwards, England was under 
the dominance of Protectionism ; the wretched Corn-laws 
forbidding the importations of foreign grain, in order that 
the domestic growers might sell to their countrymen at 
artificial prices, and thus grow the richer as bread became the 
dearer, were only repealed in 1846; and the demonstrated 
ability of Great Britain under free trade to draw on the 
fertility of the whole world for the steadily and increasingly 
cheap maintenance of her people, demonstrates the irrele- 
vancy of Malthusianism to the Science of Economics. 

The Supply of personal services at any time or place in 
answer to the Demand for them, is affected by several 
important circumstances, which we shall now proceed to 
consider in their order. 

(a) The agreeahleness or disagreeableness of rendering a 
given set of services will affect the Supply of laborers at 
that point, and help to determine the rate of Wages paid 
to them ; because the more agreeable employment will 



2l8 PRINCIPLES OF POLITICAL ECONOMY. 

attract the larger number of laborers, will experience in 
consequence the press of competition, and the rate of wages 
then and there will be lessened thereby. The more dis- 
agreeable employment will feel less the pressure of num- 
bers, and will secure, other things being equal, a higher 
rate of remuneration in consequence. Among the elements 
which, in spite of diversity of tastes, make any employment 
agreeable or disagreeable to the laborers, are (1) the less or 
greater exertion of physical strength required, (2) the 
healthfulness or unhealthfulness of the service, (3) its 
cleanliness or dirtiness, (4) the degree of liberty or con- 
finement in it, (5) the safety or hazard of the employment, 
(6) the esteem or disrepute of it in public opinion. To 
illustrate each of these in order, the stone-mason, the glass- 
blower, the scavenger, the factory operative, the worker in 
a powder-mill, the smuggler, will each receive a larger 
compensation owing to the peculiar element of disagree- 
ableness involved in his own personal service ; and he will 
be able to demand and secure the higher rate through the 
action of this disagreeableness upon the Supply of such 
laborers. Of all these elements, public opinion is per- 
haps the most operative ; and if this be favorable to 
an employment, and some social consideration be attached 
to it, and only common qualifications be required for 
it, the wages in it will infallibly be low. This is doubt- 
less the main reason why so many young women prefer 
to teach, rather than be employed in mills or shops or 
offices, and why the wages of female teachers have been 
so remarkably low ; although each of the elements of agree- 
ableness specified above may also contribute something 
towards the same result. If a business be decidedly op- 
posed to public opinion, it must hold out the inducement 
of a large reward, or nobody will engage in it. This 
explains the abnormal gains of the slave-trade, the liquor- 
business, of gambling-houses, and of lotteries. 



PERSONAL SERVICES. 219 

(b) The easiness or difficulty of learning to render 
acceptably a given set of personal services, v^^ill have a 
quick and constant influence on the Supply of these ser- 
vices, and of course also on the rate of the return paid for 
them. The elements of this Difficulty in general are time, 
expense, lack of natural gifts, want of foresight on the 
part of those concerned, and lack of push and persistency 
on the part of the learner himself. To put a boy appren- 
tice to a trade, for example, requires on the part of the 
parents a foresight, an ability to get on without his imme- 
diate help, and sometimes also an amount of money for his 
board and clothes which all parents do not possess ; many 
boys too, who must acquire their skill to sell personal ser- 
vices when they are young, if at all, find on trial that they do 
not like the trade, or have not the requisite gifts, or fail in 
the appropriate patience and propulsion ; and the conse- 
quence is, that the Supply of laborers along that particular 
line is lessened, and the right to demand and the ability to 
secure a higher rate of wages than is accorded to common 
laborers accompany the small supply, thi-ough the reduction 
of numbers which these obstacles at the entrance occasion 
and the consequent weakness of competition. This is one 
principal ground of the difference in the wages of skilled 
and unskilled laborers ; the other being, as we have seen, 
the stronger and more constant Demand for the former, 
owing to the impulse imparted by Capital. All these 
points of difficulty at the outset apply, still more strongly 
in the case of professional laborers, serving more effectually 
to thin out the ranks of these, and pushing upward still 
higher the gauge of compensation for the successful com- 
petitors. 

(c) The constancy/ or inconstancy of prospective employ- 
ment in a given business, is a consideration that affects 
the Supply within it, and then the wages. If the services 



220 PRINCIPLES OF POLITICAL ECONOMY. 

be of such a character, that they can only be carried on 
during nine months of the year, the wages of the renderers 
will be greater by the day or the month than they would 
be, provided the services were in order during all the 
twelve months. The laborer is apt to look at the aggre- 
gate earnings of the year, and will hardly take up a trade 
which affords employment but a part of the time, unless 
some compensation can be found in the higher wages for 
that time. This is the chief reason why the wages of the 
mason and house-painter, in this climate at least, are 
higher than those of the blacksmith and carpenter. The 
coachman, also, may stand by his horses half the day or 
night with no call for his services, and must have, there- 
fore, a proportionably higher fare from those whom he 
does transport. In general, it is found that men prefer a 
constant rendering with a lower rate of pay, than an incon- 
stant one with a prospect of larger wages for the particular 
jobs actually done ; and because the many prefer that, 
those who take up with the other are able to secure a 
higher relative rate of pay in their less eligible vocation. 
It must be noticed, however, as counterworking this, that 
some men have desire for intervals of leisure in their busi- 
ness, and for opportunity to make these intervals subser- 
vient to some avocation or other means of livelihood. 

(d) The probahiliti/ of success or the opposite in any , 
line of personal services, is a circumstance that has some 
influence on the rate of wages paid in it, through the 
action of this probability on the numbers of those who 
enter upon it. If ultimate success be doubtful, fewer per- 
sons will naturally engage in such a business, and those 
who dare in it and succeed, will probably reap a very high 
reward. So, also, those who take jobs by the contract, and 
therein assume more or less of risk, are commonly paid at a 
higher rate for their services than those who do similar 



PERSONAL SERVICES. 221 

work by the day. It is true, that this is owing partly to 
the fact that the contractor usually puts in his own capital 
more or less, and must therefore be paid profits as well as 
wages, and also that the wages of superintendence are due 
to him in addition to ordinary wages ; still, there is a resid- 
uum of difference, which can only be accounted for by 
the risk he runs of a successful issue of his contract. The 
general variation in Supply and wages from this fourth 
cause, would certainly be greater than it is, were it not for 
the overweening confidence which men in all generations 
seem to have in their own good luck. This excess of 
worldly faith is always seen in the rush which is made for 
newly discovered mining regions. It was seen to perfec- 
tion in 1889 in the uncontrollable advance of thousands 
into, and their almost immediate exit out of, the then just 
opened territory of Oklahoma. The facility with which 
lottery tickets are sold even yet in many countries proves 
the prevalence of this over-confidence. It is demonstrable 
beforehand on the doctrine of Chances, that no person can 
rationally buy any lottery ticket at its advertised price, 
because if that person should buy all the tickets adver- 
tised he would certainly lose money, since the sum of the 
prizes is always less than the sum of the prices. Other- 
wise the projectors of the lottery would always lose 
money. 

(e) The mohility or immobility of laborers as a class 
acts powerfully upon the Supply of them at any one time 
and place, and consequently upon the rates of wages then 
and there. In some countries, notably in the United 
States, laborers as a class move from place to place with 
considerable facility under the action of Demand for per- 
sonal services. According to the Census of 1870, 7,500,000 
of the native population dwelt in other States than those 
in which they were born. Many of these, doubtless, had 



222 PKINCIPLES OF POLITICAL ECONOMY. 

left their native region to obtain more fertile land, and 
many also to obtain more remunerative employment as 
laborers. The native American, more than most other 
persons, is not only willing to move from place to place in 
the hope of bettering his condition, but is also willing to 
change his occupation from time to time in the same hope. 
There is more freedom of movement locally, and less fixed- 
ness of occupation on the part of laborers and others, in 
this country than in any other industrial country. Even 
foreign immigrants here, — factory operatives, miners, and 
other laborers, — seem to catch after a while the spirit of 
the country in both these respects. There is one consid- 
erable advantage in all this, namely, competition becomes 
more uniform in all places, an unusual demand for laborers 
at any one point is easily met, and wages neither rise so 
high nor fall so low at special points as they otherwise 
would. But there are considerable disadvantages in all 
this too, chiefly these, the services of laborers floating 
locally or changing the kind of their labor can never 
become so excellent as service more steady in place and 
time ; and, especially, thorougli apprenticeships, or what- 
ever may be equivalent to these, are held in too little 
esteem by public opinion, and are too little requisite in 
order to obtain transient employment. To meet the obvi- 
ous pressure of these disadvantages, an admirable device 
is now being hit on, namely, to introduce into our public 
schools something in the way of " manual training " for 
the various trades. Public institutions also, some of them 
on a great scale, as the Cooper Union in New York and a 
more recent munificent foundation in Philadelphia, have 
been established on purpose to train boys and girls both in 
eye and hand to render skilfully those artisan services of 
the various kinds which ^\\\\ always be in demand among 
men, and which have certainly deteriorated among us 



PEKSOiSrAL SERVICES. 223 

owing in part to the disuse of the old apprenticeship- 
system. 

In Europe, on the other hand, the laborers as a class are 
far less mobile than here ; and in Asia still less so. There 
is said to be no country in Europe in which the proportion 
of foreigners to the native population exceeds three per 
centum. In England, which is a small country, the 
difference in Wages between the northern and southern 
counties is very remarkable. Professor Fawcett is authority 
for the statement, that an ordinary agricultural laborer in 
Yorkshire during the winter months earns 13 shillings a 
week, while a Wiltshire or Dorsetshire laborer doing 
similar work during the same number of hours earns but 
9 shillings. The contrast in general between the Wages 
of English agricultural laborers and those paid in mills 
and mines and furnaces is still more striking. And so 
more or less, in respect to the Value of Commodities : 
competition is yet by no means perfect in distributing 
these so as to make their price uniform in the same 
country or even in the same county ; but the immobility of 
laborers for an obvious reason is much greater than the 
immobility of goods. While laborers should certainly be 
free to go wherever their services may be in greater 
Demand, the natural reluctance of most men to leave their 
native haunts, enables each of the nations to work out its 
freely chosen ends without wholesale interference from 
abroad. If China should precipitate itself upon the United 
States, or India upon England, as the mere economical 
impulse might indicate, it would be disastrous to the 
western nations ; but men are everywhere under other 
influences besides the economical one, although this is 
strong and distinct and pervasive ; Political Economy deals 
with men as they are all things considered, and with 
Buying and Selling as this actually takes place over the 



224 PRINCIPLES OF POLITICAL ECONOMY. 

world, or rather as it would take place if factitious 
economical restraints were removed; and Providence has 
other great ends in view besides commercial prosperity, 
vital as that is to all other progress, and often holds one 
impulse in check by a stronger one. 

( f ) Custom^ with its cognates Prejudice and Fashion, 
has still a good deal to do with the Supply of laborers in 
certain departments of effort, and of course with the rates 
of wages in them. In former times in this country and 
in the older countries particularly. Custom and decree 
were dominant in determining, for example, the current 
fees of lawyers and doctors, competition coming in to 
decide how many such fees a professional laborer should 
get, rather than the amount of each particular fee. The 
shares of the produce going respectively to the agricultural 
tenant and to the landowner, were specially under the 
dominion of Custom; as the mode (now decadent) of taking 
farms " at the halves^'''' once universally prevalent in New 
England, sufficiently shows. In certain other matters relat- 
ing to land and trade. Custom has long been gradually hard- 
ening into express law, as, for instance, the famous "Ulster 
Right " in Ireland. Prejudice, which is only another name 
for Custom, has some voice still in adjusting rates of wages, 
as may be seen in women's wages crowded down apparently 
to a point unreasonaby low as compared with the wages of 
men; and also in the rate of John Chinaman's wages in 
those parts of the United States where he ventures to offer 
his services in the teeth of public opinion and hostile 
legislation. It may be spoken with general truth and 
satisfaction, that competition seems now to be breaking 
down mere custom and prejudice in all directions, and may 
perhaps in the good time coming reign supreme over 
the economic field; while Fashion, which bears indeed on 
one side of its shield the motto " custom," carries too on 



PERSONAL SERVICES. 225 

the other the bold word " competition," and this second 
side is likely to be presented to the public mostly in the 
future, because, they who lead the styles in any department 
whatsoever will always offer their services to Society at an 
advantage to themselves, that being one form of compe- 
tition, and their rate of compensation will be legitimately 
higher than the average rate of their fellows, of which a 
good instance was the marked worldly prosperity during 
the decade of the Eighties of Worth, the man-dressmaker 
of Paris. 

(g) Legal Restrictions are another cause acting on wages, 
by acting directly on the Supply of laborers. Laws inhib- 
iting or promoting immigration ; laws appointing the fees 
and salaries of officials; tariff -taxes, whether prohibitory 
or only restrictive ; laws creating privileged classes of any 
kind, which is only another designation for laws restricting 
the rights of the masses ; unequal modes of taxation, 
whether adopted in ignorance or by design; all have a 
direct and powerful agency upon the distribution of 
laborers, upon the supj^ly of them at given points, and 
upon the rates of their wages. Governments are coming, 
however, much more freely than formerly, but never 
through their natural choice and drift as governments, 
only by the gradual and oft-disappointed compulsion of 
their citizens, to leave all these matters Economical except 
the wages of their own servants and those commodities 
which they choose to tax, to the simple and safe action of 
Supply and Demand. 

(h) Voluntary Associations for that avowed purpose 
were a mediaeval, and have come to be again a modern, 
agency in adjusting the Supply of laborers to their respect- 
ive markets, and in regulating the wages of various classes 
of them. The Guilds of the Middle Ages, and particularly 
the old guilds of London, had a remarkable history, upon 



226 PRINCIPLES OF POLITICAL ECONOMY. 

which we can not here even touch. Their local importance 
is sufficiently attested by the fact, that the City Hall of 
London is to this day the " Guildhall." King Edward III. 
humored the civic feeling of his time by becoming himself 
a member of the Guild of Armorers. "A seven years' 
apprenticeship formed the necessary prelude to full mem- 
bership of any trade-guild. Their regulations were of 
the minutest character ; the quality and value of work 
was rigidly prescribed, the hours of toil fixed from day- 
break to curfew, and strict provision made against com- 
petition in labor. At each meeting of these guilds their 
members gathered round the Craft-box, which contained 
the rules of their Society, and stood with bared heads as it 
was opened. The warden and a quorum of guild-brothers 
formed a court which enforced the ordinances of the guild, 
inspected all work done by its members, confiscated unlaw- 
ful tools or unworthy goods ; and disobedience to their 
orders was punished by fines, or in the last resort by 
expulsion, which involved the loss of right to trade. A 
common fund was raised by contributions among the 
members, which not only provided for the trade objects of 
the guild, but sufficed to found chantries and masses, and 
set up painted windows in the church of their patron saint. 
Even at the present day the arms of the craft-guild may 
often be seen blazoned in cathedrals, side by side with 
those of prelates and kings." ^ 

The Trades-Unions and Brotherhoods of the present 
day cannot plead the provocations and justifications of 
their mediaeval predecessors. It cannot be denied, how- 
ever, that they have some provocations and justifications 
in the bad example set before them by the various combi- 
nations (implied or explicit) of the Wages-payers as a 
class. If the Wages-payers combine, then the Wages- 

1 Green's Short History of the English People, p. 144. 



PERSONAL SERVICES. 227 

takers would seem to have no resource but in combination. 
Both alike are wrong in this. Both alike oppose in this 
the spirit of Political Economy, which is ever the spirit of 
Freedom, and is ever against such factitious associations 
for such purposes, because the}^ tend to destroy the inde- 
pendence of personal action on the part of both payers and 
takers of wages, and tend also to bring all the workmen 
of any one general grade down to one level of effort and 
reward. 

(i) Lastly, we must note the influence of Casual Events 
upon wages, as these events affect the Supply of laborers. 
For example, in 1348, a terrible plague, called the Black 
Death, invaded England and swept away more than one- 
half of its population. " Even when the first burst of panic 
was over, the sudden rise of wages consequent on the 
enormous diminution in the supply of free labor, though 
accompanied by a corresponding rise in the price of food, 
rudely disturbed the course of industrial employments ; 
harvests rotted on the ground, and fields were left unfilled, 
not merely from scarcity of hands, but from the strife 
which noAv for the first time revealed itself between Cap- 
ital and Labor " (Green). The landowners of the country 
districts, and the craftsmen of the towns, not understand- 
ing the law of Wages as an invariable resultant of the 
Demand and Supply of laborers, were scandalized by what 
seemed to them the extravagant demands of the new 
labor-class. Parliament equally ignorant with the People 
of the natural economic law, enacted as follows : " Every 
man or woman of whatsoever co7idition, free or bond, able 
in body, and within the age of threescore years, and not hav- 
ing of his own whereof he may live, nor land of his oivn 
about the tillage of ivhieh he may occupy himself, and not 
serviny any other, shall be bound to serve the employer who 
shall require him to do so, and shall take only the wages 



228 PKINCIPLES OF rOLITICAL ECONOMY. 

which tvere accusto»u'(l to he taken in the neighborhood irhere 
he is bound to serve two years before the pim/ue began.^^ 
Aftenvards, tlie runaway laborer Avas ordered by Parlia- 
mentary enactment to be branded in the forehead by a 
hot iron, and the harboring of the country serfs in the 
towns, in which under their civic rules a serf kee|)ino- him- 
self a year and a day was thereafter free, was rigorously 
forbidden. These acts of Parliament, and many more of 
the same kind, were powerless to keep down wages to the 
old standard, but were powerful to kee}) up ill-blood and 
social discontent. They prepared the way for agitators 
like John Ball, for the poet-agitator Piers Ploughman, and 
for the great Peasant Revolt of 1381. John Ball's famous 
rhyme condensed the scorn for the nobles, the longing for 
just rule, and the resentment at oi)pression, of the peasants 
of that time and of all times : — 

" When Adam delved and Eve span, 
Who was then the gentleman ? " 

A hundred years after the lUack Death the wages of a 
common English laborer — we have the highest authority 
for the statement — connnandeil twice the amount of the 
necessaries of life which could have been obtained for the 
wages paid under Edward III. 

3. Having noAV seen fully the varied action of Supply 
and Demand upon the Value of personal services in their 
three kinds, we come at length to the most important 
general point in this chapter, namely, that in the second 
class of Services, those purchased in connection with the 
use of Capital, Wages are all the tlsie enlarging 
RELATIA'ELY TO PROFITS. We have secu clearly already, 
that Cost of Labor and Cost of Capital are the only oner- 
ous elements in the cost of Commodities ; because, while 
Natural Agents are all the time assisting and assisting more 



PERSONAL SERVICES. 229 

and more effectively in such production, they work with- 
out weariness or decay and without fee or reward. The 
reward of laborers Ls Wages, and the reward of capitalists 
is Profits ; and we are now to demonstrate, that the pai-t of 
their joint products falling to laborers as wages is all the 
while increasing as compared with the remaining part fall- 
ing to capitalists as profits. This truth is of the deepest 
significance, and of the most cheering character ; because 
men are more important in the universe than things ; and 
because the number of men who sell their services as labor- 
ers is vastly greater than the number of men who sell their 
services as capitalists. 

It is another indisputable and exhilarating truth for the 
masses of mankind, that the Value of each item or article 
of those products created by the joint action of laborers 
and capitalists is ever becoming less and less as measured 
by any relatively fixed standard as Money ; so that, while 
wages as thus measured becomes a larger and larger aggre- 
gate as compared with the aggregate of profits, and is 
shared of course by a much larger number of people, 
those commodities looked at as a collection of items for 
which the wages of these many is usually expended for 
their own comforts, are becoming all the time cheaper 
and cheaper to everybody, owing to the ever-enlarging 
and wholly gratuitous action of natural forces. 

For the sake of simplicity in the argument on this great 
point, we will first look at what the facts are through 
recent illustrations gathered by other parties for a wholly 
different purpose, and then give in detail the economical 
grounds for these patent and universal facts. Take for 
example, from Poor's Railroad Manual for 1889 a table 
showing in a graphic way the steady reduction in freight 
charges per ton per mile from 1865 to 1888 of seven repre- 
sentative Eastern trunk railroad lines, namely, the Penn- 



230 



PRINCIPLES OF POLITICAL ECONOMY. 



sylvania, Fort Wayne and Chicago, New York Central, 
Michigan Central, Lake Shoie, Boston and Albany, and 
Lake Erie and Western ; and of six leading Western roads, 
namely, the Illinois Central, St. Paul, Burlington and 
Quincy, Chicago and Northwestern, Rock Island, and 
Chicago and Alton. The following are the figures : — 

Rate Charges per Ton per Mile (in Cents). 



Year. 


Eastern. 


Western. 


Tear. 


Eastern. 


Western. 


1865 


2.900 


3.642 


1877 


.971 


1.664 


1866 


2.503 


3.459 


1878 


.898 


1.476 


1867 


2.305 


3.175 


1879 


.764 


1.279 


1868 


2.132 


3.151 


1880 


.869 


1.389 


1869 


1.860 


3.026 


1881 


.763 


1.405 


1870 


1.593 


2.423 


1882 


.756 


1.364 


1871 


1.478 


2.509 


1883 


.829 


1.310 


1872 


1.504 


2.324 


1884 


.740 


1.220 


1873 


1.476 


2.188 


1885 


.636 


1.158 


1874 


1.332 


2.160 


1886 


.711 


1.111 


1875 


1.161 


1.979 


1887 


.718 


1.014 


1876 


.985 


1.877 


1888 


.609 


.934 



This reduction of rates in the case of the group of 
Eastern roads has amounted to 79 'per centum^ and in the 
Western group to 73 per centum, in the twenty-four years. 
Not less remarkable than the extent of this decline in 
freight charges per mile is its uniformity. Both groups 
show a wonderful steadiness in the progress of rate reduc- 
tions. Starting at quite different points as to territorial 
development, they have yet travelled at a nearly equal pace 
in the same direction. This shows the operation of causes 
at once steady and universal. Statistics can never of them- 
selves yield us causes ; but they guide the way to them ; 
at any rate, they prevent any radical misinterpretation of 
them. The great and overshadowing cause here of the 
cheaper freights per ton, as everywhere else of cheaper 



PERSONAL SERVICES. 231 

rates at the junction of efforts by capitalists and laborers, 
is of course the perpetual and augmenting and ever-gratu- 
itous assistance of natural forces at every point. 

While the rates of freight per ton have decreased more 
than three-quarters in less than one-quarter of a century 
in the case of these 13 railroads on the whole average, the 
entire cost of the operation of these roads in this interval 
of time has not been diminished to any appreciable extent, 
as also stated by the same Manual. The main item in all 
the operation-expenses of railroads is the wages paid to 
the laborers of all grades; and the laborers are quite as 
well paid now on these 18 roads as they were in 1865, 
proper allowances being made for the changed and chang- 
ing standards in the national Money. If, on a broad view, 
railroad employees of all grades have lost nothing as such 
in their wages in this interval ; and the general public, 
including these laborers and also the capitalists concerned, 
have greatly gained, how can we account for the immensely 
lessened freight-charges while the whole operation-expenses 
continue substantially as before ? 

There is only one rational account to be given of this. 
And it is trustworthy. All known facts jump with it, and 
nothing substantial can be urged against it. The gains to 
the masses including the capitalists and the laborers have 
come out of the capitalists as such. This is apparent as well 
as real. Cost of Labor and Cost of Capital is the whole 
cost. If the whole cost of moving one ton of freight from 
Boston to Chicago is f less than it was i of a century ago, 
the cost of the labor being the same at the two points of 
time, then the conclusion is inevitable, that the cost of the 
capital at the second point is less than it was at the first 
point. With this conclusion all facts agree. All the 
laborers connected with a railroad from highest to lowest 
must be paid at any rate, or else the trains will certainly 



232 PRINCIPLES OF POLITICAL ECONOMY. 

cease to move, whether the stockholders receive any 
dividend or not on their capital invested. The original 
stock — the capital that built the roads — of many if not of 
most the railroads in the country, has been annihilated, a 
new indebtedness in another loini called bonds having 
taken the place of it. Even the nominal dividends of 
dividend-})aying roads have declined in the interval from 
10 or 8 to 5 or 4 per centum in the general, that is, 50 per 
centum. It is perfectly evident on every hand, that there; 
is something in the nature and progress of things, that 
makes for wages as contrasted with profits: wages hold on 
and relatively enlarge, prolits decline or go out altogether. 
Fortunately we are not left to generalities here, however 
plain and certain these may be. One of the 13 railroads 
specified above, the Illinois Central, made a remarkable 
exhibit in its own annual Report of 1887, showing the cost 
of its locomotive service for each year of the thirty years 
preceding. This cost per mile I'un had fallen from 26.52 
cents in 1857 to 13.98 cents in 1886. This reduction had 
been effected wliolly on the Capital side of the account, by 
inventions and improvements of all sorts in the niacldnery 
of locomotion ; while the wages of the engineers and 
firemen had risen in the period from 4.51 cents to 5.52 cents 
per mile run. The cost of llie labor had risen both 
I'elatively and absolutely while the cjost of the capital had 
declined l)oth absolutely and relatively. In 1857 the 
engineers and lirenien had received as wages 17% of tlie 
entire cost of the locomotive sei'vice, but in 1886 they had 
received 39 % of that total cost. The table is as follows : — 



PERSONAL SERVICES. 



233 



I. C. R. R. CO. 

Performance op Locomotives. Relation of Wages to Total 
Cost per Mile Run. 



Years. 


Cost of wages 

of ciigineerB 

and tiienion per 

mile run. 


Total cost 

per 
mile run. 


Years. 


Cost of wages 

of engineers 

and firemen per 

mile run. 


Total cost 

per 
mile run. 




Cents. 


Cents. 




Cents. 


Cents. 


1857 




f4.51 


26.22 


1872 




r5.77 


21.76 


1858 




3.97 


19.81 


1873 




5.84 


21.10 


1859 




3.81 


20.78 


1874 


►>> 


6.02 


19.57 


18(50 


c2 


3.90 


20.17 


1875 


s . 


6.03 


19.57 


18G1 




3.84 


18.92 


1876 


3 


5.79 


18.81 


1802 




' 3.85 


17.42 


1877 


o 


5.54 


17.21 


18G;3 




3.93 


22.28 


1878 




5.46 


15.29 


18(J4 




5..50 


33.52 


1879 




'5.41 


14.15 


1805 


^ 


5.05 


37.44 


1880 




5.41 


14.95 


1800 





5.78 


32.67 


1881 




5.54 


16..58 


1807 


U 


6.18 


29.62 


1882 


TJ 


5.09 


15.82 


1808 


3 

o 


6.11 


27.57 


1883 


o ■ 


5.35 


15.57 


1809 




5.88 


25.49 


1884 




5.28 


14.45 


1870 




5.95 


25.15 


1885 




5.49 


15.02 


1871 




5.72 


21 .50 


1886 




5.-52 


13.93 



In 1857 the engineers and firemen received VJ^^-^^ per cent, of total cost. 
In 1865 the engineers and firemen received IS^f-J-^ per cent, of total cost. 
In 1867 tlie engineers and firemen received 20/g%''% per cent, of total cost. 
In 1886 the engineers and firemen received 39y%yjj per cent, of total cost. 

These illustrations from the railroads are plainly indic- 
ative of a general truth of the utmost importance in 
Political Economy, namely, tliat all increase of Capital and 
all inventions and improvements in its practical application, 
while it redounds to the benefit of capitalists as a class, 
redounds in a still higher degree to the benefit of laborers as 
a class. Let us now attend for a moment to the convincing 
Proof of this truth in two phases of such proof, and also 
to a cheering conclusion that follows it. 

(a) As any country grows older in time and richer 
through abstinence, and as the whole world thus grows 



234 PRINCIPLES OF POLITICAL ECONOMY. 

older and richer, the tendenc}^ there and everywhere 
towards a general decline in the rate per centum for the 
use of capital becomes patent and universal. The rate of 
interest on money loaned, and the rate of profits on capital 
used, tend all the Avhile to go down as and because capital 
accumulates. No one will dispute this as a simple fact of 
history. And no economist will dispute, that this is just 
what we might expect beforehand as a corollary from the 
admitted proposition, that, other things being equal, an 
increased Supply of anything means a lessened Value for 
any specific part of it. Three centuries ago in England 
the legal rate of interest was 10%, while now the current 
rate is about 4% in that country, and has been consider- 
ably lower than that in Holland, although in both countries 
and everywhere else there are temporary interruptions and 
reactions in the constant tendency now being considered. 
During the first years of mining operations in California, 
from 8% to 15% per month with security of real estate 
was paid for the use of money, which enormous rates long 
ago declined to rates not much higher than those paid in 
the States along the ^Mississippi River, and in these also 
the rates are all the while approximating those current in 
the older Eastern States, whose own rates too are slowly 
declining. But, while there is a less rate of profit or 
interest on each 100 invested, there are many more hun- 
dreds capitalized ; consequently, there is an absolute gain 
to capitalists as a class, at once in tlie aggregate amount 
of the capital and in the aggregate sum of the profits from 
it, since no capitalist would have a motive to capitalize 
further under the smaller rates of profit, unless the aggre- 
gate of profits under the new conditions were greater than 
under tlie old condition of higher rates ; and, as much of 
this accumulating capital in order to become productive 
must now be offered to laborers in the form of wages, we 



PERSONAL SERVICES. 235 

might almost pronounce beforehand, that it would prove 
both an absolute and also a relative gain to laborers as a 
class. And so it is. 

(b) Let us take to figures. An hypothesis or supposed 
case, whenever it may easily become an overt fact, may be 
reasoned from just as logically and securely as the overt 
fact itself. Let -1100,000,000, while the rate of profit is 
6%, and $500,000,000, when the rate has fallen to 4%, be 
expended in payment of simple wages. So far forth as 
that one element of cost goes, the value of the products 
to be divided yearly between capitalists and laborers will 
become respectively 1106,000,000 and 1520,000,000. In the 
first case, $6,000,000 is profits and $100,000,000 is wages ; 
in the second case, $20,000,000 is profits and $500,000,000 
is wages. Here is an absolute gain to the capitalists, since 
profits have gone up from $6,000,000 to $20,000,000, and 
so are more than three times as great as before. But 
wages have gone up both absolutely and relatively to the 
rise of profits. They have risen from $100,000,000 to 
$500,000,000, and are five times as great as before. Profits 
have risen as in the ratio 1:3 + , but wages in the ratio of 
1 : 5. This arithmetical example is put for the sake of 
illustration merely, but the principle of it holds good in 
every case, in which the rate per centum goes down in 
consequence of the increase of capital in business ; and, 
therefore, the advantages of ever-enlarging Capital are 
even greater to laborers as a class than to the capitalists 
themselves. Most assuredlj'-, if the capitalists take less out 
of each hundred of the swelling hundreds now than before, 
the laborers must take more out of each hundred than 
before. Profits and Wages are reciprocally the leavings 
of each other, because the aggregate products created by 
the joint agency of Capitalist and Laborer are wholly to 
be divided between the two. There can be no other 
claimant even. 



236 PRIN'CIPLES OF POLITICAL ECONOMY. 

(^e) This (lemonstratioii is extremely important in Polit- 
ical Economy, and consequently in Social Life ; for it 
proves beyond the possibility of a cavil, the Value of per- 
sonal services tends constantly to rise, not only as com- 
pared with the Value of the material commodities which 
by the aid of capital they help to create (a truth we have 
seen before), but also as compared with the Value of the 
use of its co-partner I'apital itself ; and therefore, that 
there is inwrought into the very substance of things in 
this world a tendency towards an equalit}' of economical 
condition among men. God has ordered it, and men can- 
not radically alter it. Self-interest is indeed the main- 
spring of movement in the economic world ; but the 
beauty of it and the wonder of it is, that no man can labor 
intelligently and productively under the influence c)f self- 
interest without at the same time benefiting the masses of 
men. His fair exchanges benefit the parties of the other 
part as much as they benefit himself. His very saving's 
productively employed are })oor men's livings. Only under 
the blessed freedom of universal Buying and Selling, 
subject only to the taxation of a good Government for 
public purposes pureh', can these broad benefits designed 
by a wise Providence be fully realized in action ; and the 
power of individual greed and coiporate privilege and 
governmental perversion to thwart the beneficent though 
complicated workings of these laws of Capital and Labor 
towards the common weal and iniiversal progress of man- 
kind is shortlived and soon punislied. 

4. How comes it about, then, if these laws of mutual 
inter-dependence between capitalists and laborers are so 
well-placed and Providentially balanced, that there always 
have been and are still so many misunderstandings and ill- 
feelings and actual collisions between employers and skilled 
laborers, whose interests are at bottom one and whose 



PEESONAL SEEVICES. 237 

relations ought to be so cordial? This is the last topic 
in our Chapter on Personal Services. Here we must look 
around narrowly and tread carefully. But there is a 
path. We can find it if we will. It leads through many 
short-comings in men's characters and through much igno- 
rance of plain economical truths and past unreasoning jeal- 
ousies and aggregated action on the part of both classes, and 
over the needful distinctions between impulsive selfishness 
and a true self-interest back to the same old laws of God 
laid down at once in the constitution of things and in the 
constitution of men. 

Labor-troubles are almost as old as Civilization. The 
Greek poet Euripides in his play of the " Supplicants " 
both indicates facts as they were then, and points out a 
future hope in which we may share, that these middle 
classes by a better harmony preordained and mutually 
beneficial may yet " save the State " : — 

"In each State 
Are marked three classes : of the public good 
The rich are listless, all their thoughts to more 
Aspiring ; they that struggle with their wants, 
Short of the means of life, are clamorous, rude, 
To envy much addicted, 'gainst the rich 
Aiming their bitter shafts, and led away 
By the false glosses of their wily leaders. 
'Twixt these extremes there are who save the State, 
Guardians of order, and their comitry's laws." 

At Rome and in the Roman Empire, instead of the usual 
voluntary union of capitalists and laborers for the mutual 
advantage of each other, the laborer was owned by the 
capitalist, and the true relations between the two were 
thoroughly disguised and wretchedly distorted. Business 
in all its branches came to be carried on by means of slaves ; 
the lands were tilled by slaves ; slaves became the artisans 



238 PRINCIPLES OF POLITICAL ECONOMY. 

of the country; the money-lenders and bankers of the 
centre scattered branch-banks in the towns under the 
direction of their slaves and freedmen ; the Company that 
leased on speculation the Customs-Taxes from the State 
had their slaves and freedmen levy these taxes at each 
custom-house ; the contractor for buildings bought architect- 
slaves ; and the merchant imported his goods in ships of 
his own manned by his slaves or freedmen, and then sold 
the same at wholesale or retail by the same means. In this 
way a gigantic system of unnatural traffic was built up and 
extended. In this way the very name " laborer " became 
tainted by the vile system of slavery of which he was 
a part, and the distinction itself between capitalist and 
laborer was obliterated. "Roman mercantile transactions 
fully kept pace with the contemporary development of j^olit- 
ical power, and were no less grand of their kind." " The 
Roman denarius followed up closely the Roman legions." 
" It is very possible that, compared with the suffering 
of the Roman slaves, the sum of all negro suffering is 
but a drop" (Mommsen). 

We want now to examine critically the causes of these 
constantly recurring labor-troubles, the true economical 
Remedies for them, and in connection with these the 
futility of the remedies popularly recommended for low 
Wages and the disputes between employers and employed 
of the second class. 

(1) There is an extremely common misapprehension on 
the part of both labor-givers and labor-takers as to the real 
nature of the transaction between them. Both parties 
forget, or rather neither party is ever fully instructed, that 
it is a case of pure Buying and Selling. There is never any 
obligation of the moral sort between buyers and sellers. 
The relation itself is purely economical. Moral consider- 
ations indeed cover this relation from above, just as they 



PERSONAL SERVICES. 239 

cover all other relations between man and man in human 
Society; and any two individuals standing over against 
one another as buyer and seller, also stand over against 
each other in higher and broader relations as man and man ; 
but it works confusion and mischief as between both, 
whenever relations differing in their nature and operation 
and reward are not separated from each other in the mind 
of each relator, and whenever each does not act in the 
particular relation according to the nature and rules of 
that relation alone. When A hires B to work in his factory, 
this new relation is economical not moral; there were 
moral relations between the two before this relation was 
knit, and will be again after this has been broken, and 
indeed are while this continues ; but the economical relation 
is one thing, and the others a very different thing ; they 
are so different, that they cannot be blended in mind or 
motive to any advantage to either individual or to either 
set of relations; and any degree of confusion as between 
the relations has always wrought mischief as between the 
individuals, because instead of seeing either set of relations 
in its own clear light, they now see both in a commingled 
twilight. 

What is the economical relation ? This. A desires the 
personal service of B in his factory purely for his pecun- 
iary benefit, and assumes his own ability to make all the 
calculations requisite for determining how much he can 
(profitably to himself) offer B for his service ; and B, who 
knows all about his own skill, how it was acquired and 
how much it has cost, wants to sell his service to A for 
the sake of the pecuniary return or wages. There is no 
obligation renting upon either. Man to man, each in his 
own right. There is no benevolence in the heart of either, 
so far as this matter goes. Benevolence is now an imper- 
tinence. It is a question of honest gain in broad daylight. 



240 PRINCIPLES OF POLITICAL ECONOMY. 

Benevolence is blessed in its own sphere, bnt there is no 
call for it here and now. If it comes in an unbidden guest, 
it comes in to mar and to distort. It is an incongruity. "■ 1 
never knew a Jew converted but it spoilt him,'' was the word 
of one deeply versed in human nature and in Christian 
experience. Conversion is good, and its field is broad ; 
but the Jew as such is incongruous with it. Good is 
benevolence and wide its field, but Buying and Selling 
does not need it. Its own motives are independent of it, 
and sufficient without it. 

A clouded understanding of this vital distinction has 
always played its part in Labor-troubles. Buyers and 
Sellers of personal services are always on a plane of perfect 
equality as such exchangers, and no one can be more inde- 
pendent than either of them except the hermit in his cell. 
Which must look out for the interest of the other beyond 
the terms implied in the trade itself? Which is the supe- 
rior party? Which should take off his hat, the other 
remaining covered? The truth is, and all experience and 
all analysis brings us up abreast of it, that the two parties 
to a trade of any kind stand on a footing of absolute 
equality towards each other then and there in the econom- 
ical relation about to be knit, and any conception in the 
mind of either that he has the other " at his mercy " in 
either the good or bad sense of that phrase, disturbs and 
destroys the proper conditions and balances of the exchange 
in hand ; and, what is more to the point, it implies that 
each party has not all he can do to fulfil in the letter and 
in the spirit what is always implied in the terms of a trade 
deliberately entered upon by two parties. When B agrees 
to work for A at skilled labor in his factory for a year at 
(|15 per week, he makes a good deal of a contract; and 
virtually pledges to A not only the motions of his hands 
for that period of time, but also the vigorous attention of 



PERSONAL SERVICES. 241 

his mind to that service and to the general interests of his 
employer so far as these come under his own eye and 
supervision. Nor is this all : he virtually pledges himself 
to B to cooperate with the least possible friction in all 
plans for betterment in his division of the work, and to 
cordially coalesce with all other employees for the general 
ends of the business without too much of self-assertion and 
without too little of courtesy to others. To fulfil this con- 
tract in all its spirit rounds up the circle of B's economical 
obligations to A. He will 23ractically have all he can do, so 
far as A is concerned, and in consistency with all his various 
duties to others, to make good to him at all points his 
simple business pledges. Benevolence, the interests of a 
common citizenship, and the reciprocal ties of religion, lie 
wholly outside. 

A will practically have all he can do, so far as B is 
concerned, to fulfil in the letter and in the spirit his 
econ-omical obligations to him, without troubling himself 
to see whether B is going to vote the same party ticket 
that he himself votes, and without confounding either B's 
poverty or prosperity with his own obligation to be polite 
to him at all times and to pay him promptly his weekly 
stipend. So long as B renders in letter and in spirit what 
he has agreed to render, and A returns in the same way 
what he has promised to return, the less either thinks and 
talks and acts about the other in all the other relations of 
life, the better hope of good success to both in this relation. 
Church relations and social relations and political relations 
are all of consequence in themselves ; but when any of 
these begin to get mixed up with labor-relations, there is 
soon a muss and a mess. Incongruous things, things 
no way vitally connected with that, often come in to dis- 
turb and destroy a simple matter of mutual renderings. 

(a) The first practical remedy for difficulties arising 



242 PRINCIPLES OF POLITICAL ECONOMY. 

under this first head, is a clearer separation in the mind 
of both parties to a tiade of what really belongs to Buying 
and Selling from what belongs to all other departments of 
activity. More common 'sense is needed at this point, 
more simple analysis, more daylight, more personal inde- 
pendence, more introspection as to motives, more power in 
making distinctions, and a more practical separation of 
what is clear and fixed from what is complex and obscure 
in human relations. Metaphysics may yet lie in cloud- 
land. Ethics may not yet have drawn its outer and interior 
lines so strong and deep as it will. Sociology also is a 
vast field of complexities, but truth to tell Economics has 
no mysteries to speak of. I buy and sell for my own 
advantage, which proves in the nature of things to be for 
the equal advantage of my compeer. It is my business 
and my compeer's business and every other man's business 
who buys and sells, to pick that action out in its motive 
and result from the great mass of dubious actions, and to 
set it up in its own light, to rejoice in it as the clearest 
thing in social action, to claim it as God's own plan so far 
forth for our comfort and progress, and then to see to 
it that no preposterous hand mixes it up with perplexities 
or theologies or other abominations — muddying with a 
tentative pole the stream of our clear brook ! In this 
country at least, in its ignorance of common things and 
common science, the pulpit often fulminates against the 
gains of exchange as " materialism,"' and mixes up buying 
and selling with " worldliness," and only half permits its 
deluded hearers the privileges of the market, and illustrates 
again in modern times such teaching as is denounced to 
St. Timothy, — "some swerving turned aside to vain bab- 
bling, desiring to be teachers of the Law, understanding 
neither tvhat they say, nor ivhereof they affirm.'''' "Let every 
shoemaker stick to his last." Those who have looked into 



- PEKSONAL SERVICES. 243 

it with any care have found, that Exchange in all its natu- 
ral outgoings is not answerable to these pulpit charges, nor 
is contrary to the letter or spirit of the biblical precepts, 
but on the other hand is in full harmony with the claims 
of Conscience and with all the inbreathings and aspirations 
of Christianity. 

(b) The second practical remedy for the labor-difficul- 
ties arising from the want of thorough understanding by 
both parties of the real nature of hired renderings of the 
second class, is fair common honesty. More of an easily 
accessible intelligence, more of penetration and separation 
as to social relations in general, meets the first point ; but 
quite as needful as this simple intellectual process, is the 
still simpler moral habit of doing just what one has agreed 
to do, without evasions and without diminutions. Labor 
difficulties take their origin more often, perhaps, in some 
clouded moral action of one of the parties, than in a 
clouded mental apprehension. Men are too conscious as 
men of their own temptations, to be lax in their pledged 
renderings and of their own shortcomings at this point, 
not to be suspicious of each other as buyers and sellers, 
for fear the party of the other part is about to withdraw 
something either in quantity or quality of what he has 
promised to render ; there is almost alwaj'^s something or 
other to give color to such a suspicion, and it grows by 
what it feeds on ; frank explanations are not had at the 
outset, and a good understanding is not come to, as it 
doubtless might be in nine cases out of ten ; and the little 
cloud, at first no bigger than a man's hand, by and by 
becomes black and threatening, and bursts at last in a 
strike or lock-out of large proportions. An open honesty 
that is such and seems such, that is not beyond the aim and 
reach of common men, that is taught in scores of forms in 
" Poor Richard's Almanack," and that each man ever likes 



244 PRINCIPLES OF POLITICAL ECONOIVIY. 

to meet with and so ought ever to put forth, is in fact a pre- 
ventive of conflicts between laborers and employers, and 
would if properly manifested have prevented multitudes 
of such actual conflicts. Here is the main, almost the sole, 
point of contact between strict Ethics and the Economics. 
What buyers and sellers, that is to say, the whole prac- 
tical world, needs, is not disquisitions on Morals from Press 
or Pulpit, but an inner ear to hear the true click of 
Conscience, and the quick and open answer in honest 
action. 

(2) A second general cause of the Labor-troubles of the 
past and present has been a strong tendency to neglect the 
special preparation for their peculiar functions by both 
capitalists and laborers. A successful employer of laborers 
year in and year out to their advantage and his own is 
always one who has been trained to that function by 
special preparations. He is a living man with all the lim- 
itations of living men : he has to deal with many living 
men with all their imperfections : he has to deal also, and 
constantly, with what is in its own nature dead, namely. 
Capital, always either a commodity or a claim : to animate 
and invigorate these dead forms of value, to put them into 
vital connection with living men who shall enhance their 
value, and thus to become a leader to living men as 
tow^ards swelling interests, demands unusual native gifts 
and a special long-continued training. When one looks 
from without upon such an establishment as this in full 
action, it seems automatic, it seems as if almost anj^body 
with a clear head could continue to direct it ; and when 
this " captain of industry " departs this life, perhaps his 
son or some previous subordinate, without the proper gifts 
and at least without the peculiar training, assumes the 
post of direction. For a little everything seems to go on 
as before. As sure as fate, however, a friction will soon 



PERSONAL SERVICES. 245 

develop here, and a misunderstanding there, there will be 
whisperings among the men, some breath of suspicion 
will be likely to cloud the borrowing-power, opening 
difficulties of any kind such as loss of credit or a weaken- 
ing of the usual markets are apt to throw a new operator 
more or less off his base, and gathering labor-troubles of 
an}^ sort commonly find such a man unprepared for lack 
of suitable training and experience to ward them off or to 
make timely concessions to the men or to minimize the 
evil results when these become incAdtable. 

Also labor-troubles are quite as likely to arise from the 
want of character and training and considerateness of the 
employees towards the capitalists. The relations are 
reciprocal and they are also in their very nature delicate. 
One poor workman however good his disposition, one 
unfaithful overseer no matter how great his possible skill, 
may mar the current product in such a way as to lose it 
the market and cost the establishment the present profit. 
The strength of a chain is the strength of its weakest link. 
It is a matter of immense difficulty at any time, and 
emphatically so at the present time to organize a working 
force in factory from top to bottom so as to have it go 
forward as a unit as towards the marketing of the product, 
without bad workmanship at some point and unskilful 
supervision at another ; because the laborers as a rule have 
not given themselves time to learn thoroughly their special 
parts, because they are not content to remain steady at one 
thing and at one place, and because they do not practically 
recognize even if they perceive it that their own permanent 
interests are exactly coincident with the permanent inter- 
ests of their employers. Just now in this country the 
public Law robs the manufacturers (at their own behest) 
of their best markets at home and abroad, makes it difficult 
or impossible for thera through wanton taxation of their 



246 PRINCIPLES OF POLITICAL ECONOMY. 

raw materials to create a good quality of goods for any 
market, and so multiplies frictions and failures and losses 
along the whole line of production. The lack of what 
may be called Appi-enticeship on the part of skilled labor- 
ers, the consequent difficulty of rising from one gradation of 
effort to a higher and better-paid one, the restlessness of 
native laborers under such disabilities, the rapid admixture 
of foreigners, the lack of coherence throughout in point of 
intelligence and apparent identity of interests, together 
with the instability and haphazardness of the resources and 
personal training of the employers as a class, gives birth to 
Labor-troubles which are at the same time Capital-troubles, 
to read the daily record of which makes one sick at heart, 
(a) The only possible and practicable remedy for this 
state of things, so far as the employers are concerned, is in a 
more conservative attitude of capitalists as a class about 
passing over their resources to the hands of men who have 
not proven their ability to handle them wisely by a full 
course of training in the management of practical affairs. 
By a wretched policy in this country at present Capital is 
prohibited from building and from buying ships, with which 
to navigate the oceans ; from selling domestic manufac- 
tures in foreign markets ; and also from a profitable agri- 
culture, which may sell its products abroad and take its 
pay back. Consequently Capital, eager in its own nature 
to be invested to a profit somehow somewhere, has rushed 
without due circumspection into the hands of domestic 
operators, who have not been half fitted for their task, 
who have knitted relations with laborers without being 
able to secure their permanent respect or to control their 
services, and who have lost to their owners in multitudes 
of cases the entire capital intrusted to them. If capitalists 
had had during the last quarter of a century one-half of 
their natural and proper chance to invest their money to a 



PERSONAL SERVICES. 247 

profit, there would not have been such a reckless invest- 
ment through incompetent hands in building mills and- 
foundries in this interval of time, and such wholesale 
losses in connection with them. When capital comes to 
be at liberty to turn right or left according to its own will 
in view of a prospective profit, factory companies and pro- 
jectors cannot draw resources from the public for their 
operations, without demonstrating to the owners the trained 
and tried capacity of the practical operators, who will buy 
the materials and hire the laborers and market the products, 
(b) The practical remedy for the inexperience and insta- 
bility and unskilfulness of laborers as tending towards 
labor-troubles of all kinds and degrees, is only to be found 
in a want of market for such services. In a natural and 
wholesome state of things, such as would exist in the 
United States were it not for national laws tampering 
with Trade and with Money, the questions asked an 
applicant for skilled work by any labor-taker would be, 
" What have you learned to do ? Sow long and for ivhat 
pay do you want to do it ? What do you want to reach next, 
when the present job is done ? " When employment turns 
on good answers to such questions as these, and when the 
questions themselves are put in good faith, there will be 
an end of Strikes and Lockouts. Untrained and restless 
hands will get nothing to do in mills and factories. 
Apprenticeship in its various forms will come back into 
vogue, and will probably be made a part of the course in 
public schools. The division and gradation of laborers 
will be carried out further than it ever yet has been. 
Laborers will then be organized in the best sense of that 
word, and to the best advantage of capitalists. The per- 
manent Supply of skilled laborers will be constantly 
adjusting itself to a permanent and increasing Demand for 
them. And it requires no millennium for such a state of 



248 PRINCIPLES OF POLITICAL ECONOMY. 

things to come in. It requires notliing but an ordinary 
and enlightened and beneficent selfishness on the part of 
capitalists to adjust itself to the ordinary selfishness of 
laborers sure to become enlightened and beneficent to the 
best and ever-growing interests of both parties. This is 
not the spoken word of Morality, still less is it the divine 
word of Religion, it is only the common programme of a 
common-sense Political Economy. 

(3) The third and last general cause of misunderstand- 
ings and embittered disputes as between laborers and 
capitalists is partly economical and partly moral, and con- 
sequently the remedy for it is pai^ly moral and partly 
economical. The Past projects itself down into the Present 
partly with blessings and partly with curses. In the old 
times under Slavery and Feudalism the laborer always 
came forward to his task with a taint upon him. Some- 
times the taint attached to his birth, and at all times it 
attached to his calling. Slavery in all its forms always 
makes manual labor degrading. The courtly Cicero apol- 
ogizes in a letter to his friend for his open sorrow over the 
death of his favorite slave; and in several passages of his 
treatise on Morals he follows his Greek teachers, Plato and 
Aristotle, and declaims in a pitiful way against the noble 
rights of laborers. '•'• All artisans are engaged in a degrading 
professio7i.^' Again, " there can be nothing ingenuous in a 
workshop.'^ When trade and commerce are carried on 
on a small scale, " theg are to he regarded as disgi'acefid " ; 
when on a large scale, " they must not he greatly condemned 
— noyi admodum vituperanda!^^ (I, 42.) 

Serfdom once existed in England, and threw its shade 
over free laborers there long after itself had disappeared. 
A class of indented servants pervaded all the New Englajid 
Colonies, and a clause of the New England Confederation 
of 1643 provided for their forced rendition from Colony to 



PERSONAL SERVICES. 249 

Colony, and passed over almost verbally into the Consti- 
tution of the United States of 1787 as applicable to the 
slaves of the South. In this way in all parts of this 
country manual laborers came to be more or less off color, 
and this has continued in a continually lessened degree till 
this time. When those who work with their hands are 
looked down upon by those who do not, two sets of feelings 
are apt to be engendered equally unfortunate to the two 
classes that entertain them. The non-manual workers, the 
employers, are more or less puffed up with pride and a 
sense of superiority (there are beautiful exceptions) as 
towards their laborers, and the latter in their turn are apt 
to develop alongside an unmanly servility and an apparent 
deference, a sort of secret breasting up of hostility and 
defiance, which is sure to manifest itself when labor 
troubles come on even when it has not helped to brood 
these troubles into life. The parties then are not well 
placed as towards each other to negotiate and to com- 
promise and to coalesce in a future harmony. The party 
of the first part is too proud to yield to their inferiors, and 
the party of the second part is too bitter to be sweetened. 
Who is sufficient for these things ? And what is the rem- 
edy for them ? 

(a) So far as employers are concerned, their natural 
though unreasonable and provoking arrogance may well be 
reduced by the economical reflection, that the laborers are 
exactly as necessary to production as the capitalists are, 
that the two stand on a precise level so far as the product 
goes, that each is one blade of the shears and the other the 
other and that it takes both blades to cut anything, that 
while the laborers are sellers in the open market the 
capitalists are likewise sellers and that the same ultimate 
purchaser furnishes the market for both sets of sellers, that 
as sellers they are only equal in position, that buying and 



250 PRINCIPLES OF POLITICAL ECONOMY. 

selling is a levelling as well as an uplifting process the 
world over, and that as such co-equal partners in one 
indivisible operation all haughtiness on one side and all 
undue humility on the other is nothing but obstacle as 
towards the common end ; and also by the moral and social 
reflection, that their laborers are just such men as them- 
selves in motive and action, that the two are very likely to 
exchange places with each other before very long, that 
riches are extremely liable to take to themselves wings 
and fly away, that Christianity is no respecter of persons, 
that humanity deems nothing human alien from itself, that 
morality puts the golden rule upon the fore-front of its 
precepts, and that whatever may unite any body of men 
in a legitimate jjurpose of achievement along any line of 
human action multiplies the power of each individual and 
exalts his standing and responsibility as such individual 
and thus reduplicates the reward of his individual action, 
(b) So far as the employees are concerned, in any tem- 
porary sense of dependence or even of injustice, there is 
open to them the economical reflection (and it will do 
them good to bring it home) that their best route to 
the respect and favor and feeling of equality of their 
employers is through the excellence of the service they 
render them and the courtesy (not servility) with which 
they render it, that as every capitalist becomes such by 
means of abstinence they may themselves by saving become 
capitalists, that there is nothing in the nature of their 
work or its relations to capital to cause them to hang down 
their heads, that handsome is that handsome does, that the 
opportune offer of the present capital to work on gives 
them a chance to exhibit their skill and to earn a living, 
that the capitalists are just as dependent on them as they 
upon those, and that as single sellers of a valuable personal 
service they daily confront on a footing of equality the 



PERSONAL SBEVICES. 251 

sellers of a valuable product so created ; and there is open 
to them also the moral and social reflection fortified by 
constant observation and experience, that no matter where 
a man begins it is the end that crowns his work, that life 
to all is a series of stepping-stones, that manly qualities are 
appreciated everywhere, that character tells in the lowest 
position however high and low are reckoned, that the poor 
gain and hold friends quite as well as the rich, that there 
was a certain poor wise man that saved the city by his 
wisdom and gained a lasting record in consequence, that 
the poor and the rich are constantly changing places in 
this world, and that there is no respect of persons with 
God. 

We may see now what we are to think of some popular 
remedies constantly recommended for low Wages. A 
brief discussion of what is false will give us a stronger 
hold of what is true. The chapter will close with relevant 
reference to three current remedies. 

1. It is being dinned into the ears of the present 
generation, that Government has large functions in the 
ongoings of business, that it ought sometimes to interfere 
to better the rate of Wages, at least to designate a mini- 
mum below Avhich they shall not go, and that Government 
should hold itself ready to undertake directly to carry on 
certain branches of business under certain circumstances. 
This scheme goes under the high-sounding name of Natiorb- 
alum. Richard T. Ely, Professor of Political Economy in 
Johns Hopkins University, is one of the most prominent 
representatives at present of this school of thought. In 
his Introduction to Political Economy just published 
(1889), he lays down this principle : " Wlienfor any class 
of business it becomes necessary to abandon the principle of 
freedom in the establishment of enterprises^ this business 
should be entirely turned over to Grovernment, either local, 



252 PRINCIPLES OF POLITICAL ECONOMY. 

state^ or federal^ according to the nature of the undertaking T 
He begins his book by attempting to hammer in the 
" lesson " that as Civilization improves, cooperation takes 
the place of individualism. The golden age of individu- 
alism, he says, is among the wild tribes of Australia. 
They never cooperate with each other in their economic 
efforts, or in anything else. No one expects anytliing 
from his neighbor, and every one does unto others as he 
thinks they would do to him. The life there is one pro- 
longed scene of selfishness and fear. But as civilization 
comes in, he says, individualism goes out, and cooperation 
takes its place. The fine old Bentham principle of laissez 
/aire, which most English thinkers for a century past have 
reerarded as established forever in the nature of man and 
in God's plans of providence and government, is gently 
tossed by Dr. Ely into the wilds of Australian barbarism. 

There are some propositions that are certainly true, and 
one of them is, that no man can write like that, who ever 
analyzed into their elements either Economics or Politics, 
who ever gained a clear conception of the sphere of either 
science in its relation to the other, or who ever saw dis- 
tinctly the relations of either to the nature of Man. The 
sole motive in Buying and Selling is the gain of the indi- 
vidual, each for and by himself. That always was the 
motive, is now, and always will be. No complications of 
modern business, no complexities of credit, no combina- 
tions of capitalists or laborers, ever altered or ever can 
alter one particle the motives of men in buying and selling. 
In a natural and progressive state of things, Individualism, 
instead of going out, comes more and more into play, 
through the Division of Labor and the falling of all sorts 
of services more and more into specialties. To talk glibly, 
as Professor Ely does, about Government taking up easily 
and carrying on in a better way and to better ends 



PERSONAL SiERVICES. 253 

branches of pure business as they are dropped, or forced 
from the hands of Individuals, is ignorance at once and 
alike of the real nature of Government and of Business. 
Let us look at a few of the native incongruities and logical 
fallacies of this nationalistic position. 

(1) What is human Government? Is there anything 
substantive and continuous in its personnel and purposes, 
as there is in the government of God? Is government 
anything more, can it be anything more, than a transient 
Committee of the citizens charged and changed to do in 
certain few particulars the changing will of a Majority? 
Government is indeed a necessity, as men are, to restrain 
the lawless, and to shape the ends of the law-abiding ; but 
it has to be administered, if at all, by precisely the same 
kind of men as the rest are, chosen for brief periods, their 
duties sharply prescribed by constitution or custom, and 
impeachments or other punishments provided for them 
when they transgress. One President of the United 
States and one Judge of its Supreme Court have already 
been solemnly impeached by the sovereign people them- 
selves. 

Government, then, is an Age7it, and nothing more. 
Even nationalists will not contend for the divine right of 
kings. And the duties of every decent government on 
earth are political in their character. The agents are 
chosen and dismissed with a direct reference to that kind 
of action. Politics has a sphere wholly distinct from 
Economics. The true and only end of politics is the great- 
est good of the greatest number, so far as that end can be 
mediated by governmental agents of the people. Individ- 
ualism as such does indeed sink out of sight under a true 
Politics, and the inalienable rights of one are maintained for 
the sake of and in consistency with the greater rights of all. 
But Economics is all individuals from beginning to end. 



254 PRINCIPLES OF POLITICAL ECONOMY. 

''''It takes two to make a han/ahi." Only two. Eaeli of 
the two has his own motive, estimates for himself, gives 
and takes for himself, and enjoys alone his own gain. All 
this is involved in the very idea of Property, which is 
derived from proprius^ and which means one's omr. How 
illog'ical, then, and incono'riu)ns. to snpposc, that a set of 
limited human agents briefly trained to purely political 
action, and liable tt) be turned out of ofiRce by every change 
in party administraticMi, can be ccnnpetent at the same 
time and in addition to perform economical functions for 
the people ! 

Notice, too, that governmental agents in all good coun- 
tries are already overburdened with their mere political 
duties. Work is behindhand in every ptn-tfolio, on every 
court calendar, and in every legislative body, in Christen- 
dom. How absurd it is, therefore, to talk about throwing 
upon shoulders, already overburdened, additional loads of 
a different kind, for which shoulders and heads are wholly 
untitted I 

Why not, then, inquires our nationalist innovator, or- 
ganize new bureaus to undertake in their behalf the buy- 
ing and selling of the people? Ah ! Who pays the taxes 
needful for the support of the present political bureaus? 
And who would have to pay the taxes needful for the sup- 
port of the new economical bureaus? Besides not having 
any substantive existence of its own Government has not 
one cent of money, except what the people voluntarily 
pay in taxes out of their own personal gains, in order to 
maintain their own agents to do certain })olitical things for 
them, Avhich they cannot do as well for themselves directly ; 
and when it comes to the cold question for the people them- 
selves to answer, whether they will organize a new set of 
hired men to do their trading for them, and pay them for 
doing this out of aggregate gains certainly to be vastly 



PERSONAL SERVICES. 255 

diminished by the process, our nation aUstic leaders will 
perhaps lind out that the people have common sense, 
whether the said leaders have it or not. 

But the damning difficulty with this governmental busi- 
ness association is, after all, in the inevitable lack of motive 
on the part of the hired men doing the buying and selling. 
It is an honor to human nature, that hired men never have 
and never can have the zeal and enterprise of principals 
and owners to forecast and to perform and to lay up; be- 
cause it shows that man is a rational animal, made in the 
image of his Maker, always acting under the pressure of 
personal motives, and always estimating what is his own 
more highly than what belongs to another. Easiness 
motives act in their fulness only on the individual, whose 
is the effort and whose is the return. Any policy what- 
ever on the part of Government, which lessens the number 
and the eagerness of individual operators in favor of great 
artificial combinations resting in the shadow of the Law, 
lessens of necessity the gains of exchanges, and the prog- 
ress of the nation, because it lessens of necessity the press 
of motive on the many to work and save. 

Government, accordingly, is quite too far off in every 
respect from the business, that is to say, from the buying 
and selling of the people, to undertake any branch of it 
when " it becomes necessary to abandon the principle of 
freedom in the establishment of enterprises." It will then 
be high time to " abandon " the " enterprises " themselves. 
If the " principle of freedom " cannot compass the " es- 
tablishment of enterprises," is it likely that the "principle" 
of secondary and irresponsible agents can do it ? To show 
the people how to make their bargains, how to buy and 
sell and save and spend, is a function government is not 
fitted for, was not established to perform, and never under- 
took without making a botch of it. 



256 PRINCIPLES OF POLITICAL ECONOIHY. 

In the Preamble of the Constitution of the United 
States there is a careful and complete and elegant enumer- 
ation of the purposes, which the body of the instrument 
was designed to attain. These purposes are six. No one 
of them contains even a hint of any purpose to enter upon 
the ^ establishment of enterprises," still less of any 
necessity " to abandon the principle of freedom." The 
last of these six purposes is jjhrased : "' and to secuee 

THE BLESSINGS OF LIBERTY TO OURSELVES AND OUR 

POSTERITY." The liberty to buy and sell freely was pre- 
cisely that "liberty" of the Colonies which was most 
threatened and infringed by the British Government, to 
vindicate that special " liberty " was the chief cause of 
the American Revolution, and " to secure the blessings " of 
that and other forms of similar " liberty " was the final 
purpose of the Constitution of the United States. 

It is true indeed that the Constitution empowers Con- 
gress, a creature of the People, " to establish Post Offices 
and Post Roads " ; but the purpose of this was political, 
and not pecuniary ; it was to bind all the States together in 
one Union of intelligence and intercourse ; it was to keep 
the outlying and distant parts in touch with the central 
and seaboard ; it is not in any sense a " business " enter- 
prise ; the department of the mails is not now and never 
has been, for any length of time, self-supporting; and it 
illustrates through and through in its " Star route frauds " 
and other contracts, in its appointment and removal of post- 
masters, and in the sickening dependence of primal Service 
of the people on partisan and corrupting impulses, many 
of them inherent evils of the much-vaunted Nationalism. 

But besides all these vital and political objections to 
the assumption on the part of government of any direct 
industrial functions whatever, there remains two other 
fundamental objections, of which the first is, that our 



PERSONAL SERVICES. 257 

national government has received no powers to any 
sucli end, and is emphatically j)roliibited in the Constitu- 
tion itself from exercising them : — " The powers not 

DELEGATED TO THE UjSTITED StATES BY THE CONSTITUTION, 
NOR PROHIBITED BY IT TO THE STATES, ARE RESERVED TO 

THE States respectively or to the people." 

(2) The second remaining objection is, that such pro- 
posed action of government could have no tendency at all 
either to enlarge the Wages-portion, or to increase the 
industrial efficiency of the laborers, or to diminish the 
number of competitors at any one point of the wages- 
scale. As a matter of fact, such governmental action would 
have precisely the opposite effect at each of these three 
vital points of wages : employers would have less motive 
to swell the wages-portion, laborers less motive to improve 
their capacity, and more motive to congregate locally. 
Suppose, that at some given point in the scale of wages, 
free and intelligent competition has been had on both sides, 
and that the average rate of wages as thus determined 
proves one dollar per day for each laborer. Suppose 
further, that everybody outside the employers thinks this 
is quite too little, and that government accordingly issues 
a decree that wages at that point must be thereafter one 
dollar and a half per day. That decree can have no ten- 
dency at all to enlarge the ivac/es-jjortion of those particular 
employers, because that has already been determined for 
the next industrial cycle by the general productiveness of 
the cycle last past, and by the last division under free com- 
petition between wages and profits ; if, therefore, the 
decree were carried out, as it never practically could be, 
the result would be that only two-thirds of the laborers 
previously employed could be employed then at all, and the 
remaining third would certainly be worse off than before ; 
and besides the Division of Labor being necessarily lessened, 



258 PRINCIPLES OF POLITICAL ECONOMY. 

production would be less profitable to the employers, and 
the next wages-portion would certainly be less than the 
one before, and thus the outcome of the remedy would be 
worse than the disease. Now let alone the artificial in- 
terference of government, and all natural accessions to 
Capital at that point, all investment of profits in an en- 
larged business, all saving from expenditure for the sake 
of further production, tend strongly of their own accord 
to enlarge the wages-portion, and thus, the number and 
intelligence of the laborers continuing as before, are sure 
to raise the rate of wages. Or, if there be no accessions 
to Capital, or other influence swelling the wages-portion, 
and the number of laborers be diminished at that point, 
as by migration to new fields of effort or enlistment in 
armies, the competition of wages-givers for laborers will be 
quickened, and the rate of wages will rise. Reversed con- 
ditions will of course give reversed results. 

2. A second popular remedy for low Wages, not only 
proposed, but also for a long time brought into practical 
action, is Labor-Unions in their various forms and with 
their manifold methods of operation upon employers. It 
is important to note here and to remember, that the Guilds 
of the mediaeval times, from which the modern Trades- 
Unions have borrowed something of form and much of 
nomenclature, were in substance extremely different from 
their modern imitators. Those were combinations of Mas- 
ters with their journeymen and apprentices and dependents 
in order to control the entire manufacture and sale of a 
certain class of products, from the name of which the 
Guild usually took its own name, as " Cloth-workers' 
guild," " Shoemakers' guild," and so on. Whittier, him- 
self a shoemaker in his boyhood, aposti'ophizes the latter 
guild in words which more or less describe them all : — 



PEESONAL SERVICES. 259 

" Ho ! workers of the old time styled 

The gentle Craft of Leather ! 
Young brothers of the ancient guild, 

Stand forth once more together ! 
Call out again your long array, 

In the olden merry manner ! 
Once more on gay St. Crispin's day, 

Fling out your blazoned banner ! " 

These masters thus organized with their laborers were 
the capitalists of their time, and in this vital matter dif- 
fered from the Unions of to-day, which are made up of 
laborers as such organized to confront, and if need be, to 
antagonize, capitalists. A royal charter was indispensable 
to the legal existence of those craftsmen. It took money 
for them to start their guilds, and in progress of time most 
of them became very rich. " A common fund was raised by 
contributions among the members, which not only provided 
for the trade objects of the guild ; but sufficed to found 
chantries and masses, and set up painted windows in the 
church of their patron saint. Even at the present day the 
arms of the craft-guild may often be seen blazoned in 
cathedrals side by side with those of prelates and kings." 
This radical difference between the two must always be 
borne in mind in all arguments and inferences drawn over 
from the mediaeval " unions " to those of the present day. 

Two points may be freely conceded to these labor-organ- 
izations before we pass to the economic objections to them. 
In the first place, the employers set the example for the 
employees in a tacit if not open combination as against the 
employees in their own interest and emolument. The so- 
called " protective " tariff, for instance, is nothing in the 
world but a strongly-linked combination of certain rich 
capitalists to extort from the masses (their own laborers 
included) artificially lifted prices for the necessaries of 
life ; and the certain result of shutting out imports by 



260 PRINCIPLES OF POLITICAL ECONOMY. 

tariff-taxes is the shutting in of would-be exports, to the 
certain lowering of general wages in a country, because 
there is a lessened demand for laborers in consequence. 
For a second good instance of combinations as against 
employees on the part of employers, take the well-known 
understanding among manufacturers of the same sort 
of goods in the same general locality, that laborers dis- 
charged from one establishment shall not be hired in any 
of the rest ; and that if the general voice call for a " shut 
down," or for three-fourths time or less, all in that line of 
goods shall comply. How can laborers be blamed for 
organizations in their own behalf when they find them- 
selves confronted as individuals with an organization of 
employers. 

Then, too, it must be acknowledged, that, had it not 
been for united action of some sort on the part of the la- 
borers, the unreasonable hours of fifty years ago in mills and 
factories would probably not have been shortened to this 
day. Capitalists as a class are conservative of methods, 
as well as of ends. The cotton and woollen manufacturers 
of Berkshire County, for example, who may doubtless be 
taken as a fair sample of the manufacturers of New Eng- 
land, stiffly refused the demands of their work-people that 
the hours might be reduced from an average of 14 through- 
out the year to an average of 11. When the late Civil 
War was going on, and the manufacturing became ex- 
tremely profitable, and the mills were more or less depleted 
by enlistment, and the remaining hands felt more indepen- 
dent from the consequent rise of wages, the combined 
demand in one mill for fewer hours was reinforced by 
simultaneous demands for the same in other mills in the 
neighborhood (the time and manner having been agreed 
upon beforehand), and visits in force by the work-peo- 
ple from mill to mill completed the desired reform. The 



PERSONAL SERVICES. 261 

mill-owners were sullen and indignant, ana submitted of 
necessity. The work-men were right. The reform was 
imperative. Credit must be given to them for the good 
they have done acting as a body on this and other occa- 
sions. 

On the other hand, all this is not business. All this is 
contrary to the very old, and the very good adage, that it 
takes tivo to make a bargain. If we express this adage in 
the language of our science, it will take some such form 
as this : When two men have mutual services to exchange, 
let them come to a fair agreement as to the terms on 
which they will exchange. Certainly, let each make 
the best terms he can, but let the bargain always be free. 
If one party, who happens to have the power to do it, uses 
anything like compulsion upon the other, it ceases so far 
forth to be a bargain at all, and becomes a sort of robbery, 
of which in some cases courts will take cognizance. Now, 
workmen bring a certain valuable service to the market, 
just such a service as the capitalist wants, and he has to 
offer just such a service as they want, namely, wages : let 
the two parties come to a free and fair agreement on the 
terms of their exchange : let each workman by all means 
make the very best terms he can, insisting to the last 
penny on all he can get elsewhere, for the value of his 
service is determined, as other values are determined, by 
what it will bring : let the employer do just the same on 
his side, and so let a fair bargain for the time present be 
struck. This is a very good kind of striJcing, and the 
more intelligence and skill and self-respect a workman 
has, the better prepared he is to strike the bargain and 
secure his just due by and for himself alone ; and this 
gives a good chance for every man who has any peculiar 
gift, who may have surpassed his fellows in diligence and 
skill, to secure a proportionate reward now and to go on 



2l!-J I'UlNCirLES OF rOLlTlC'AL ECONOMY. 

higher in future; ull this oives i)p[)ortunitv for (///v^vV// of 
relative adva)itaii(\ w liicli, as wr haw sih'u, lies at tht' basis 
of all fxi'hano-o, which itself starts in individualism and 
naturally [jroeeeds in a still hioher individualism to tho 
end. This is the only way for a laborer ol" talent and 
dilio-eneo to secure fully what belonovs to hi»i as a man and 
a workman. If he cannot get from a oiven employer 
what he thinks he ought to get, what he thinks the service 
is worth in another market, let him exercise his perfect 
right to quit and go elsewhere. All this is fair and above- 
board and individual and progressive. 

Everybody knows that there is a kind of atrilchui now 
in vogue wholly different from this, in that it brings a 
sort of comj)ulsion into play. A fair hanjain nJiould he 
broken, ij' at (t/l, j'list as it was iiiat/e, with the tiro parties 
fare to face, and everi/hodj/ else aloof; and a new han/ain. 
should be made^Just as the old one iras^ with the t/co parties 
fare to face, and eeeri/bodi/ else aloof. But a cond)ina- 
tion among workmen to leave an employer in the lurch, 
and especially a combination which forces into its ranks 
by cajoling or menaces those who are unwilling to join it, 
as is so commonly the case in Strikes, is not only I'ontrary 
to the inmost nature of a bargain, but is also of itself a 
sort of confession of the injustice of the claim. If the 
claim be just so far as all the individuals are concerned, 
there is no occasion to extort it. If the value of the 
service rendered by each be equal to (he sum demanded, 
and especially if this can be obtained elsewhere, a\ hiih is 
the only gauge of the value of any service anywhere, there 
is no need of conference and combination and conspiracy. 
Of course, this radical argument against Striki's implies 
that employers of that grade liave not entei'cd into a com- 
bination not to hire dissatisfuNl laborei's fi'om other estaln 
lishments ; if thev have, then the ai'recment can be 



PERSONAL SERVICES. 263 

turned with e(j^iuil I'orce against the employers themselves, 
for they are resorting to means outside the nature of a 
bargain, means of the same nature as a Strike. Let, then, 
each workman tell his employer the present facts just as 
they ar(!, and if this appeal prove ineffective to secure his 
commercial light, let him go quickly where he can get 
the most for his service. That this is not done, that 
means of the nature of a threat are brought to bear upon 
the employer, that the justice of the claim is not relied 
on in a case where more than anywhere else justice can 
enforce itself, that free and full explanations are not had, 
that no notice is given, that great damage is expected by 
their action to accrue to the employer, — all this seems to 
forget that the transaction between employers and em- 
ployed is a case of pure exchange, a simple bargain of one 
service against another service. 

The above is the universal and fundamental objection 
to Strikes. The remedy for economical evils, real or sup- 
posed, must ever he found in economical considerations. The 
strong but foolish tendency of the times is to mix up 
things that are quite distinct ; to try to apply to the evils 
of Trade the rules of Morals, which is a useless task ; to 
appeal to Politics in matters of pure Bargain ; and to 
resort to Force to cure the evils that flow from the wholly 
voluntary action of individuals. This is like the doctor 
who would cure bodily ailments by mental and spiritual 
recipes. It has all the absurdities of the late famous 
" Mind-cure." The mind is indeed higher than the body, 
but bodily maladies must be treated as such, or the 
patient will die ; the imperatives of Ethics are certainly 
superior to the profitables of Economics, but the latter 
are well able to take care of themselves on their own 
ground ; Religion is loftier than Morals, but it becomes a 
very poor substitute for morals in the daily routine of life. 



'JIM 



I'IMNCII'MOS Oh' roMTICAl, I'lCONOMV. 



tSnuiInt siun/i/iiis fiiiiiiil itr. lOcoiioiiiiciil evils ciiii only he 
rciiKiM'd l»v ;i heller Meoiioniics belier ii|»|)li(!il. SiriUes 
iiic an onlside iuid iirelirviuil loMKuly lor low \Va|;(;s. 

A had |irinei|>le \\(irl<s hadly in |>ra,eliee ol e((iirse; [\\v 
piineiple llial nnderlies sli'ikes is so o|»|>(»sed lo llie Innda- 
inenlal nalnre •)! exeliant;'!', llial. we niii^lil. know hefoi'e- 
iiaiid tlial il woidd work hadh ; and as a nialt(M' oi laet, 
i( does work l»a.dl\' eiiontdi holli npon employers and eni- 
|iloye<l, l»eea,iiS(^ si rikes are eerlain lo endtiller llie relalions 
between llie two classes, wliieli onu'lil always (o he eordiaJ 
and IVee, and espeeiall y, heeaiise strikes MiMsl, work on lli(^ 
minds of (lie eapilalisl lo lessen llie Wa^cs-I *orl ion for (he 
iiexl^ indnsliiiil eyeU^ l^'orl iinaleh , we possess aiilJieiilici 
statist ies eaihered a.hont Strikes hy llie Massachiisetis 
liiirean ol Slalisties of Lalxu', and puhlislied in detail in 
tli(^ Kepoii of heeemher, I SSS. The inroiination n'iven is 
t^xacl ill relation to Iinc |)iiiieipal Slates, and ap|)roxinia,t(! 
in relation to the other parts of the I'nited Slates, We 
will eop\ liist the lahle evhihitiii^' the I iosses in six years 
on aeeonni ol' Strikes of hoth l<;iiiplo\'ers and i'/inployiU'S, 
and tlu^ onlside assistance^ recciNcd h\ the latter: 



Mmri.o^ mi;m' Loss ani> Assisiaiscii; ani> luiiM.oviais' Loss in riiio l''ivio 

I'lilNCll'A I, Si VI'I'IH ON AceoliNT Ol' Si'l;IKl;s ANI> 

Locu-oii'i's i''oii 1H81 1KH(>. 





HTA'I'WN. 




ICmnloycoM* 


lOinjiloyccH' 
AhnIhIiimci'. 


I(;mj)loy(M'H' 

l.OHH. 


Illinois 

Miissiic 

N.'w V 

Ohio, 

i'cimsy 

OIIk'i'i 

Tmic 


Sir ikes 

Imsclis, . 
.rk, . . 




!tii(t,(i:t(i,208 
■l,'J()0,l8t) 

s,nsi,7Si 
ti.:i7S,7r)7 
ii},81)(),;M(1 

1 15. 127,1 .TO 


2(t(l,7()H 
7li(!,((!t(l 

•iir.,r.(;s 
7Hi,;!;t8 
8or>,7i)r) 


.1|!r.,2r.i,82i) 

1,1)70,881 

r.,!)(i(i,i2i 

*.',70:!,I27 

;{,807,7r.7 

10,821, 2n8 
!iliM0,701,f.5S 


iv;uii;i. 




;uis of Ihc I 
llNrrici) St 


' iiilcil SlalcH, 

Vl'lCW, . . . 


.1i!ni,814,72!l 


!fn,n2-t,f)r)7 



I'EKSOMAL SERVICES. 265 

The liu'gc! peiconiagc of establishments represented in 
this table, in which the strikes were ordered by labor-organ- 
izations, is piU'ticuhu'ly noticeable. In New York 94.26% 
of the cstal)lislinionis had strikes which were ordered, in 
Illinois 88.96%, in Massachusetts 81.91%, and in the United 
Siatcis 82.24%. The " walkino-dologato " so-called became 
the principal personage in all these strikes ; he brought the 
orders to the men from the "central-union" of their special 
organization, and became in most cases the sole means of 
connnunication between the two. " You are the Htrihe^'' 
exclaimed the Lord Mayor of London the other day to Mr. 
Burns, the walking delegate of the dock-laborers now on 
strike in that city. That the daily bread and home com- 
forts of tens of thousands of men depend on the secret 
and irresponsible decision of a little knot of agitators, 
sending out their verbal and often ambiguous wi-ittcn oi'ders 
by a walking-delegate or two, is one of tlic monstrosities 
of Strikes often witnessed in the United States. The labor- 
ers sometinuis do not know even tlio causes of the strike. 
Tliei'c has been great want and suffering for three months 
past among the striking coal-miners in the State of Illinois ; 
and a bricif editorial in the " Springfield Republican " of 
Aug. 24, 1889, describes the state of things so justly, that 
we quote it : — 

"Ex-Congressman William L. Scott, who owns coal 
mines at Spring Valley, 111., has offered to pay 75 cents a 
ton for minino' to tlie strikers who in their destitution have 
been subsisting for some time on public charity. This is 
2,^ cents a ton more than the miners have asked for, but it 
is coupled with the condition that each man nuist seek 
work individually and not through some outside union 
committee. Although the men have been reduced to a 
state of abject want it is said the conditions imposed will 
prevent a settlement. In that case we may conclude that 



i!0(l 



l'l(IN<ll'l,l';ti n|i' l'(t|,ri'i(iAl, I'lCdNoMV. 



II Inw Wt'll Inl wiill-.ili)' <lrli'|Mil('M HIT itclili).; lor llic inrii 
iiiid iKil Ihry I'm I liciiiMrl vcm. 1 1 im ii mI rtiii)^',r liitic lui|iiil) 

Itic u\rl Mlirll ll null In. 'I'lllf WiM'Ht 11.11(1 llioiil ( l| )| lI'I'MMI VO 
(Mli'iiiy nl liiliiii IM (III- |iiiriiMiln vviin livt'.i ll|ii)li il.'i ijin- 
ll'OHHtlH." 

A rihlKr ill II Mlllln nl Will, lllid \\Ur Will, llirm iiir l,\vu 
piillini Id ll, iiihI ll riiiiiml Itn rsjicchd lliiil. IIk^ |iiii'Iv uI' 
|,||(^ iillid jillll Illiullld IMil. (lIllKc lill.rl\. 'rilr '' /nr/, mil " IH 
llir ruiiidri til KiK'' id I lie cii | il I ill ml 1 1 1 I In* '' ''//'/7i r " id lilll 
liiliiiiri'. Lui 1^ imiIm, Imwi'M r, iin> rniii|iiii'iil i \ rl ^ in ri'i'i|iii«iiL 
( 'ii|iiliiliMlM, ii;i II I nil', inr cnilHri'Viil i vi< ;iiid Ini'liciuili^'. 
MltHMUidlllMrlii'l liMiK llir ill 11 1 l.'il ir;i id' liiid^ iilll.'i ll.M cill'id'nlly 
lUi lliurin id rdrikr;i, iiiid llin lidliiwiii;; im llir liililr: 



/ III ^ ()((/«. 
Illliiolri 

MllHrillollllhl'liH, 
Ni'W Vnlit, 

(tlllM, 

I'oiiiihylvinilii 

nilii>i' luii'lHiil' lliit lliill.t<(IHUIoH, 

'I'lllil llNITWIt HtATHW, , . . 



|i:ni|il..v....«' 



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tii.?,:ilii 

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iltii.,;i'M 

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7V,ll.'l« 

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l|l,in(»,0!IH 



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liUM, 



I|.'I-IV,(M1I. 

Mill.ltVi) 

•lti:i,l<)<> 

'.'.'IV, Villi 
JIMH.I'.'I 

|;i, '1(12, '.Mil 



l.lkr Will' Ion, mImKc'I iind liirLiMil.'i llir WilMlrl'iii iiliil 
(|i>intil'llll/.lll|.'; ll) liiilli |iiiili(';i. W'liy tdiiMild llirir Im ii 
I'lvini'l III I'niro lu Mrlllr iiii indil.'il rill! diM|illln iiliv iiioin lliiiii 
III firl I Ir nil \ nl lin |n I \ ;ilo ili,i| ml i' '' Will Miirli n i r.uul Itc 
|i)iif>, liili'i.iird Im |iiiIiIii' i>|iiiiiiiii ill ('iNili.M'd I'liiinl I'iivs 7 

Till' I ,r!;l.il,ll llir id M ,i ,:inrliii;ud I ;i III JSSli |ir.i\id(M| I'lii'll, 
SImIi' lliiiii'd III' .\ rliil liil inn I'm' lln' tn'l I Iriiiriil nl ddlrr 
t»ll(M*H l»(d\V('('n (>lll|dnVi«IH lllld (Mllpiovi'i'.'t. Till' (ilill lllo wiin 
(^n|ll(' ill Hmnc itvi|iiMdM, iiiid llio ltii;iiM id' il iml \'my liiinly 
lUi^d III III!' iiiilini' nl' lliinj^;;!, ImiI llir Kini'iiii id' l,iil)i)|- 



I'KKHONAI, SI'UtVIOKH. 



2(i7 



i'('|(()i'(,H Mini i(. li;i.H lifcii jiKililicd l>y iJui rcMiills in ils |)i"ic- 
LiciiJ ji|)|)lit'::i,tii)ii (l(iriii<'; IIk; mIkmL IJiik; of il,s *)|)(;i':iJ.ioii. 
'I'Ik' I)!'():mI l.nilJi ill, l\n\i Uu; viiJiK; oi' ( 'oiiiiiii)(liti(t<s luid (lie 
viiJiK! of ('i(;(lil.M is now Icl'l. I,(» lJi(5 Hide lU'l-iun of I)(:ni;Mi(l 
;ui(l Sn|i|(ly under ficr coniiicliUon in nvi'i'y I'oiinl.ry in 
( !|iiiMl-(^nd(>ni : why iilnHild mil. Uiii vidnc ol' Sdi'vicdM \ir, 
l(d'l, 1(1 I, lid Miuni! Hid'd iuid in(i\()i;d»l(UMil-i(»n ? ( M»V(ii'nni(tMl.M 
);iiV(i lip l<Mi;;' ;ijn> idl idcii, of i'('-!>;id;d/nif"; dii'i'c.U y or indii'dclly 
l.li(( prices of ni('icli;uidi;i(' ;uid iJir piiccM ul conuncrciid 
(ditiniH of :dl kinds: will iJmy not. HlioiiJy i;iv(i up idso idl 
id(',;i, of rcjndidinj'; dii'cclJy or indiivclJ y Mk! riddH of Wii^'(!m7 
'rii<!y will. 'I'Ih! Uircc iundii of lJiin;';M jxinjdil, :uid Mold lU'o 
(in :ui (ixiM'.f l(tv(d in flio nid-iirci of lJiin<i;M, mo \'u.v uh (lovorii- 
nicnL in concerned. Wii.,";nM nvn id)niMl:inlJy idile fo fid<o 
ciu'd of I lidniMcl vt'M in Mic, ordinary wii-y, !iM jniodii (lo, luid 
Mfoi'kM :uid IxukIm ; luid :ui cniifdilciK^I I'nlilic Opinion iM 
fiiHti (!oniin<"; to H(io, (>liid> ii ni;iJiV. pcrtionid M(;rvic(t rendered 
lioodH no more flio ()V(ii'Hifj['hl. of Mie Sl;d(( in ifM Mide lJi;ui 
liiM liorMe, or nol-e of liiiiid iif inI.ereMl.. Sfrii^cM, ;ind loe.ic- 
oids, iuid idl (ix fritordiniiry eoiirfM or IxiiudM fo Mell.le cpiiu'- 
rcls lHi(,W(M!n ii, i;d»or n'ivei' ii,nd it lid)or-fid<er its Miieli, Mined 
if is a. ea.se of ordinary linyin;;' and Mellinj';, a,re l(ire(|o(inie(| 
fo pa,MM onl/ in IJk! }>'ood l/inie eomine'. 

'TowardM iJiiM j;dod end worlvM Mfi'oiiidy flie eonimon 
I'lill/i/i/ (if MlrikeM and lo(ds onlM. ('arroll I). VVrifdif, eirnd' 
of file niir(!a,ii, of LaJxir in Ma,MMiMdiiiMeffM, now I lie head of 
file NaJJonaJ HnreiMi of liajmr, in ITim Sfaie K'eporl. for |S.S<I, 
i;'a.ve a. Miiecinef aiecdiinl- of all Mfrik(iM in MiaJ. Sfa.fe Iroin 
Mieir liecinnilif ill |,S)'.0. They were I.M> ill aJI,of wliieli 
101) were nnitiiecdMHfill, \^ apparently MiieeeMMlnl, Id einn 
])roiniHed, (I paj'fly HncdCHMfnl, and In '•'•resiilf unknown." 
In (Jrea,l. lirifaJn dnrinc; llie \ca,r IK7H, (Jier(' oeeiirred 'JTT 
HfrikcM, of vvliieh 'J.Sd wer(f hiiliireM, 17 wtM'e comproiiiiMiid, 
mid only '1 vvoi'u HiieeoHMfiil. 'I'lio following' fiiblo Lukun 



268 



l'IMN('ll'l,KS <)l' I'OLrncAL l';<'nN(iMV. 



IVolii lli(^ MiiSMiicliilsct is Ivcpoii <»r ISHS, j^ivfs (III ;i hioiid 
Hcalc! ihv rcsiill-s of Sliikcs in I he llnilcd Stales lor six 
yuiirH : - 

(JUNI l(AI. SllMMAI(\ 1)1 Sill IK KM IN KlVIO I 'll I NT 1 1',\ I, Si'AI'KH I'OII 18K1 IRRfl. 

J'nrenla(jrs. 







h 






i 


oiluir 




< 'I.AMMIl'll A'I'KINM. 


IIIIiiiiIn. 


N«iw 
Voik. 


Ohio. 


V. 

M 

P 


I'lU'lN 
IlI'lIlK 

llnlti.il 

HlllM'N. 


'I'lllC 

Umticii 

Htaticm. 












(^ 






.S7;'/7.'.;i. 












1 )rilcii'(l liy liilior (irgiiii 
l/.U(lollH,' 

KHliibti»liiiH'iiU cloni'il, . 


Hll.lllt 
7(1.711 


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iii.di 


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huMliiiiliiK woili, . . 

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iih.yH 


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mill I'l'iliiiilliiii III' lioiii'M, 
Kill' iT.liirlliini.l' hiiiiiH, 


iH.;i6 


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'1':.7 1 


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ll'dl' I'Klllll'llllM III' lllllll'H 
















llllil uuiiliinl. liitliiM I'lilii 
linllKil III liiiiuil Willi 

tiiupliiynr 

OLlliil' t'.lillHrH 


lll.UI 


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17.(14 


|{.iihiiIIh; 

HliriT.iilril 

Niu^ihii'iIkiI piu'lly, . . 
Ifiillml, . .... 


(ll.lll 
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;ifi.-2H 

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* III Ifi imliilillHliiiii'lilH lli« I'i'nilllH vviMii nut iini-kI'IiiIiiiiiI. 

'\. 'I'lic lliii'd |i((|iiiliir iciiicdv for low Waives, wliicli lins 
ut Iciisl. I lie iiici'il (if ItciiiL;- in (lie line (if ('((iiKiiiiical coii- 
HidiM'iiiidiis, as llic oilier two are iiol, i,s '' ( 'o (i|ieraiioii." 
Tile inlei'esl, in Ihis |ii'o|iosed remedy i'^ iiineli less liolli in 
lMiid|ie and in llie Hiiiled Slides lliaii rdinieily, o\\ in^' (o 
tlie failures thai liave mostly idt('lide(l the allem|its to |iilt 
I lie selieiiie into |ira(i ice, all lion idi llieic lia.\ c lieeii some I'e- 
niai'kaJilt^ successes also, part. ieiiliU'ly in Knoland. TIm; idcii 
of Co opeiiition is lliis, namely, that ceitaiii lalioriM'S wilhiii 
^iveii classes comliiiic of I heir own accord, ( I ) rillicr lo j)ur- 



PERSONAL SERVICES. 269 

chase their necessaries in common and at wholesale, hence at 
cheaper rates because avoidimj all profits of the middlemen ; 
or (2), more especially to engage in the joint production of the 
commodities they are familiar with, the laborers furyiishing 
the capital also from their little hoards or borrowing it on the 
strength of their individual or associated credit, managing the 
business themselves, all being co-partners, and of course all 
sharing pro rata the entire profits of the concern. 

All this is well ; and in countries where laborers have 
been under traditional disabilities, it may be in some cases 
very promotive of their self-respect, activity, frugality, and 
general welfare ; but any one can see that no new economic 
principle is involved in the plan. As in all other produc- 
tion, so here, there must be (1) capital from some source, 
(2) steady and skilful labor, and (3) superintendence or 
management of the business. It is at the third point that 
schemes of co-operation have mostly broken down. The 
faculty of good management is rare ; the organizing and 
executive ability needful to carry through any scheme of 
co-operation will not come upoii call ; if any of the co-oper- 
ators chance to possess it, the scheme may succeed, al- 
though he who is conscious of having it will prefer to use 
it for his own gain in his own way, to say nothing of the 
practical impossibility of any man's working with the same 
spirit when the gain or loss is to be largely another's as 
when it is to be wholly his own ; moreover, it has been 
well said, "it is impossible to hire commercial genius or 
the instincts of a skilful trader " ; so that, while there is 
no trouble about the workmen uniting the character of 
capitalist and laborer in their own persons, and no doubt 
that they will work harder and more skilfully while shar- 
ing profits as well as receiving wages, it is still true, that 
the difficulty of securing a real " captain of industry," and 
thus a perfect organization and management of the whole 



270 PRINCIPLES OF POLITICAL ECONOMY. 

business, puts the scheme of co-operation out of the ques- 
tion as a means of raising wages, or promoting the general 
welfare of laborers. 

In this country, where there is nothing to hinder any 
laborer from becoming a capitalist, where the savings-banks 
are open to the smallest gains, where nothing is more 
common than for two or more workmen to organize a firm 
to carry on some branch of business, where most of the 
present capitalists proper were formerly laborers proper, 
and where the shares of most of the joint-stock companies 
are open to everybody who has the means to buy them, 
there is only one consideration that seems to justify any 
special jealousy of laborers as such towards capitalists as 
such ; and that is the fact, that Legislation, every now and 
then, sometimes on a small scale and then on a gigantic 
one, now by means of corporate charters and then by 
other means more indirect and effective, does cojifer certain 
extraordinary privileges upon capitalists. So long as cap- 
italists and laborers rest upon their natural rights and 
positions, neither can get any undue advantage of the 
other ; and just so far as each recognizes their identity of 
economic interest and the consequent reciprocity of obli- 
gation and effort, the prosperity of each will help build 
up the other; but, on the other hand, so far forth as any 
advantages are given to capitalists by special laws, either 
of State or Nation, these become necessarily unjust to 
laborers, and ultimately also injurious to capitalists; and 
in this case, the laborers, seeing just what it is that hurts 
them, oufjht to combine tof/efher and to strike, not capital 
(their best friend}, but a piece of perverted legislation (their 
worst enemy'). 



COMMERCIAL CREDITS. 271 



CHAPTER IV. 

COMMERCIAL CREDITS. 

Political Economy is the Science of Sales ; and because 
it is the science of sales, its definitions and principles must 
cover equally all cases of sales actually occurring or pos- 
sible to occur. We have seen repeatedly, that only three 
kinds of things are ever bought and sold, or ever will be, 
and these are Commodities and Services and Claims. The 
first two kinds have been fully elucidated already in the 
two preceding chapters, and it belongs to the present 
chapter to explain and illustrate clearly the peculiarities of 
the third kind of things salable. Ours is the only science 
that has to do with the motives and facts and economic 
results of all sales as such. 

The discussions of the present chapter will proceed 
orderly through the following topics : — 

The Nature of Credit. 
The Forms of Credit. 
The Advantages of Credit. 
The Disadvantages of Credit. 

1. Certain things are essential in every sale of anything, 
and of course are common to all sales of everything, such 
as two persons and two desires and two estimates and two 
renderings ; while there are certain peculiarities in the sale 
of things belonging to each of the three special classes of 
things salable; for example, in the sale of a commodity 
there is a rendering of a tangible object that has been 



272 iMMN(Mi'M';s <ii' i'(>i,i'I'I(:ai> i<;(!(»n(imv. 

|(r{'|i;iic(l 1(11' s;ili' in piisl time, iiiul in llic sjilc ol' ;i sorvi(!C a 
rcndci'iiiL;' (»l iin inlann'ihlc SdinclhinL;' wholly in (lie present 
lime; while in (he sale of aci'CMJit. Miere iire likewise two 
peculiarities, one of them iclatino' to fuiiirci time and the 
(tiller to a. spiM'ial trust lelt^ in a person by some othei' 
person. We must, now study thc^se two peculiarities with 
ea,re ; and, mastcMiu^' these, wu shiill bo iiiiisttir of the 
Nature of ( 'redit. 

a. Some sales are eousummatcMi ilt oiu'e, \\\v lliiutj^s c.\- 
elia,ui;-ed and the ownership in them nw. mutually passed 
()\cr then and there, the reciprocal satisfactions arc ent(M"e(l 
U|ioii immediatel\, and there is at once an economical end. 

I'or example, one utdt^hhor S(dls aiiotluu' a \n'v.\i of j^rtH^n 
peas and takes in pay a p(Hd< of now poliitoc^s, l)olh ve<jfo- 
tahles may he cooked for dinner in the res|)eetive families 
the same (la\, and the commercial t I'ansa-ction is all over. 
l\\\{ thci'c ai'c olhei' c\chanL;'es, an immense class of them, 
different from these in this res|)ect, that though the trans- 
action considered as a. nierci ca,si> of value created and 
measured is then and there emh'd, yot eonsidercnl as to tho 
natiirt^ of that preliminary e\chanL;(^ whi(di implies and 
I'Oipiires anothei- future (!\ehauo(> to eonsununate it, it is 
not then and there ullimat(dy closed, l)ul ouo (or both) of 
the parties then cxchani^in^' iclies on the L;-ood faith of 
some one else to fullil in the futui'c a. pU'di^'*^ e\[)rossly. 
or im|)liedh' made in the prior e\(dianL;-e. ( 'onnuonly some 
(external evidence of the itlcdj^c is ci-catcd and passed at 
the lime, l»ut^ this is noti essential to the validity of the 
|»ledL;"e itself. l'\)r example, A hins oO bushels of wheat of 
I?, and li takes in \yAy foi' it A's note (tf hand at six months 
for !ii<7r). The note is not the pledge, but it is a h'o'al and 
eonvenient proof of it. As a case in N'alue, the whiMt is 
sold for the pledj^'c and th(> |)ledn'e is tlie (Mpiivalent of the 
wht'at. I'lach pariN I'cudcred the other then and there 



COMMERCIAI. (JREDITS. 273 

satisfactory e(j[uivalciits. All our definitions apply here 
perfectly. 

Still ;i further and future exohanp^e was contemplated 
by both parties a-t the time of makiuo' this exchange, and 
as a silent part of it. A takes what is now his own wheat, 
and B takes as an e(|uivalent for what was his wheat a 
right to demand of A in six months an equivalent for the 
present equivalent (the pledge) for the sake of which B 
rendered the wheat. The note of hand is the evidence of 
this pledge, and it belongs absolutely to B. It is his prop- 
erty, lie may keep it till matuiity and then sell it to A 
for its face, or he may sell it at once to a baidc for its face 
less the discount for six inontlis. Discount is the differ- 
ence between the face and the jjresent price of a note of 
luuid. 'I'he (ii-st |)e('uliiU'ity, then, of (-redit is, that it 
always involves the element of future time. But it in- 
volves this secondarily, and not primarily. In other 
words, a j)reseiit e(][uivalent is always rendered by both 
parties in every commercial transaction ; but the present 
equivalent in the case of a credit transaction is the right 
to demand something of somebody sometime in the future. 
This distinction is very important, as we shall see clearly 
when we come to treat of Baidving, though it is generally 
ill-understood at present. Valuables, when they exchange 
at all, exchange once for all. But there is one kind of val- 
uables, namely, claims, which, when subject to exchange, 
imply and require another and ;i I'ulure exchange, not 
necessarily between the })artit's to the (irst exchange, but 
between name two particis ; and not, speaking stiictly, to 
consummate the first exchange, because tluit took a,nd gave 
its own satisfactory equivalents; but, as involving both 
time and trust, the credit sale must in the nature of things 
be followed by another sale of one of the three kinds. 

We see, accordingly, that in Credit our science of l^.co- 



274 I'KINCIPLES OF TOLITICAL ECONOMY. 

iioinics takes partial possession of future time for certain 
purposes of its own. Excliange sets its throne and reigns 
pre-eminently in present time ; but its sceptre extends also 
over past time, so far as all capital is concerned, and so far 
as all material commodities (the result of past work) are 
exposed for sale in the present ; and its I'ight liand of rule 
goes forth also to grasp the future, under limitations indeed 
both as to the stretch of time covered and as to the char- 
acter of the persons concerned, but still there is tliere a 
fair domain and a broad domain, and a realm on the whole 
wiiuiing a wider and wider circuit. It is one of the; proud 
l)oasts of Political I'^conomy as a science, as it is too one of 
th(! (ixaltcd traits of human natui'c, that the lordly impulse 
to buy and sell does not conline itself to what the Past 
offers in all its a(u;umulated valuables, nor to what the 
Present unfolds in the unlimited desii'cs and efforts of con- 
gregated men, but reaehes out also into tlu; r'uturc!, and 
makes that 2)ay tribute more and more into the vast treas- 
ury of its Gains. And this too is legitimate. Man is at 
once and all the time actor and historian and prophet. 
The future is not wholly unknown. Given the one as- 
sumption, that Earth and Men go on as heretofore. Ex- 
change knows well enough, and better and better, whom 
of the coTTiing men to trust and for how long a time. The 
doctrine of averages and of ])robabilities comes along to 
guide and to cnhearten tlui investor. Any thoroughly 
established government of to-diiy can borrow all the money 
that it Avants on its public pledge to rejjay the principal 
(ifty years lumee. England has borrowed millions of 
pounds slcrling, giving no day certain in the; fnlnic for 
its i-epaynu-nt. These funds are called '^ ( "onsolidated 
Annuities": the interest on tliem is paid on a day nomi- 
nated in the bond: the principal is to be paid when the 
borrower choos(;s, or never. 



COMMERCIAL CREDITS. 275 

b. The other and final peculiarity of Credit is, that it 
always involves on the part of one person a commercial 
confidence in some person an such. The term, Credit, is 
derived from the Latin Credo, / believe., and the corre- 
sponding term, Debt, from Dbbeo, I owe. Thus the per- 
sonal element and tlie future element are wrapt up in the 
very origin of the words. There is no credit without debt, 
and no debt without credit. The very words imply a belief 
of one of the two parties in a commercial promise made 
by the other, and also an obligation acknowledged by this 
party as due to the first. There is a basis for credit in 
human nature. Faith in each other to a certain extent is 
natural to men. Whatever enlarges the intellectual fore- 
sight, and especially the moral character of men, opens a 
broader and surer field for Credits. Civilization, so-called, 
and Christianity certainly, deepens and broadens the natu- 
ral trust of man in man. Despite all the instances of 
broken faith, and they are too many ; despite the shocks 
and cautions that come every now and then to every man 
who trusts much in his fellow-men ; experience itself justi- 
fies and rewards an ever-growing commercial trust. It is 
one of the noble things in international commerce, as we 
shall see, that men trust each other across the oceans, and 
lay millions of value upon the faith of a single firm. As 
the core of the Christian religion is confidence in a Person., 
so the very substance of credits is a natural and in general 
well-grounded faith in persons as such. 

A Credit, then, may be defined to be a Right to demand 
something of somebody ; and a Debt to be an Obligation to 
pay something to somebody. What always lies, accordingly, 
between creditors and debtors, are Rights coupled with 
Obligations ; and these are Property, just as much as any- 
thing is and for the same reason, since they always may 
be, and usually are, bought and sold by other parties as 



27() ruiNini'LKs ov roLiTicAi. economy. 

well its tlio original paitics. In (licsc lvi<jjlit.s or Claims, 
thorororo, arises a (•oiumci-cd, (loiuostic ami I'oicioii, immiMiso 
in extent and aniounl, and llie lvii;lits themselves take tlieir 
nndis[)uted place on an e(inalilv with lanL»il)le Commodi- 
ties and personal SeiN'ices. 

ilavino- lluis reai'luul an idtimatc and satislacliMv delini- 
tion ol' Credit, we mnst still pnrsne a little I'nitlier onr 
present object, namely, (o oMain a clear conception ol' the 
natun- ol' this ^reat ehiss of \'alnal>les, \\y drawing- two or 
threes distinctions hetwiuMi Credit-Ui^hts and sonu> other 
rights very apt to he confoniided with them. 

(1) The distinction between eredit-riohts and other 
rights is well rooted in the Latin lanoiiao'i' and in the 
Ivonnin law, while the correspond int;- lOnolish terms arc 
(jnite amhignous and nei'd to be nsed with griMt cantion. 
In Latin, a, ti'n(^ debt^ is calU'd a Miihnnn, beeanse it lies 
between two persons, a. creditor, and a dcbt-or, and is a 
erudit-rii^ht independent ol' the (piestion of fact whether 
tho debtor has now the thini;' rendered to him or not, 
indeed whether he has anythini;' at all to |)av with or not; 
on the other hand, a tliini^- merely lent, when the very 
thint;' lent is to be letnrned to its owiici-, w ho has not in 
tlu^ meantime parted with his propeiiy to tlii' otlu-i', is 
calltMl in Latin a CoiinnoilitI uin. 'V\\v I'ji^'lish toii^'ne has 
bnt the one; word, Loan, for the two very distinct optna- 
tions: for the loan of a. book, for instance", which is to bo 
returncMl afti'i' nse, and which may be legally reclaimed 
by the owner if he idianet; t-o lind it anywherc^ that is, 
the Latin coiintiixidhiin : ami for tlu^ loan of money, or 
other snch mcasniablc thim;', which is to be ri'tnrni'd in 
kind only, and which may n<>f logiilly be rcelaimed excei)t 
through some atUion of the borrower, since the ownership 
of that thing rendered has passed over to him completely, 
that is, the Latin vik/iiidh. The same ambiguity of course 



COMMEUCIAI. (JUKDITS. 277 

inheres in llio correHporidirig English word, Jiorrov). 'J'lio 
English language is relativoly poor i/j words cxj;rossing 
nice J(}gal distinctions. 

Now, as a true debt is a chiirn on a jjernon and never on 
a thintj^ the Roman Law is true to ilif; naluie of things 
and to th(; vital distinctions oi" our science, when it names 
the right U) which a mutuum gives birth as a jun in per- 
softam, that is to say, a right against the jjcrsorj ; while it 
names the legal obligation arising out of a oornmodatum as 
ajuH in re, that is to say, a right to the very thing. So 
strongly is this doctrine, namely, that the security of a 
true debt lies against persons and not against things, in- 
trenched in the Roman Law, that debts or credits are 
even termed "nomma," names, in that law, as when 
[Jlpian says, " Nomina eorum qui Huh conditione vel in 
diem dehent ei e'mere el vendere solemus " .• We ai'c accus- 
torne<] to buy and hcM Dehts payabhj on a certain day and 
at a certain (;vent. '^^Ihe fundamental law of the present 
national banks of the United States explicitly recognizes 
this old and good distinction by requirijig the banks to 
loan money on personal security only, that is to say, no 
tangible things, not even real estate, may be taken as 
orif/inal security for any loan. 

(2) Henry ])u)ining iMacleod, who has cast fresh light 
on the natui'c of Credit, draws another distinction that 
lies on th(; thr(;shold of the subject, namely, that between 
paper documents conveying titles to specific thinf/s, such 
as ii bill of ladiii;^', foj' example, and those conveying credit- 
ri(j}bts, such as a bank-note, for example. Bills of lading 
describe the goods, go out with the goods, are a title to 
the goods, and have no value separate from the goods ; bank- 
notes have nothing to do with any specific pieces of prop- 
erty anywhere, are in no proper sense a title to anything 
whatever, but a general claim for something upon some 



278 rniNcivLES ok tolitical economy. 

person somewhere that awaits liis action for its validity 
and realization. For instance, a grain-dealer in Chicago sells 
1,000 Imshels of No. 2 wheat to a party in New York, and 
ships tlie grain to that point by rail: two kinds of paper 
docnnients arise in connection with this transaction, which 
are qnite diverse in their nature and course of operation : 
one is a hiU of ladin;!^ that goes along with the wheat, and 
gives tlie |)crson named in the bill a com})lete title to 
1,000 bushels of wheat of a certain description, and the 
holder of the bill takes the wheat and asks no favors of 
anybody ; and the other is a hill of exclumye^ drawn by the 
grain-dealer in Chicago on the consignee of the wheat in 
New York, which bill of exchange is sold at once by the 
creditor in Chicago to a banker there, provided the banker 
has commercial t'ontidence in the two names on the bill 
and a sut'Hcicnt motive in the shai)e of a discount for Imy- 
inofit: thus the bill of lading has in it neither element 
of Credit, neither Time nor Trust, while the bill of ex- 
change has both of these elements in it. 

(3) Attention should be called to a third distinction of 
the same general nature, as between relations very differ- 
ent in themselves and yet extremely liable to be con- 
founded with each other. Let us take a connnon instance: 
a customer of a bank takes a package of valuables of any 
kind to his banker, such as bonds and bills payable and 
jewels and plate, and asks him to take care of it for the 
present in his vault, subject of course to a return to him or 
any one else to his order at any time : no property in these 
valuables passes over to the banker, it is not a deposit in 
the ordinary banking sense, the relation of debtor and cred- 
itor does not arise as between banker and depositor, the 
banker becomes Trustee or Bailee of the package, and is 
bound to exercise common vigilance in the care of it, but 
if it be burned or stolen extraordinarily the loss is the cus- 



COMMERCIAL CREDITS. 279 

tomer's and not the banker's. But now, on the other hand, 
when a customer deposits in the banking sense money or 
bills payable with his banker, the property in the money 
and bills passes over to the banker instantly, the relation 
of debtor and creditor arises, the depositor receives a credit 
on the l)anker's books in return for the money and bills 
rendered, the exchange as a mere case of value is consum- 
mated to the profit of both parties, but the return-service 
to the depositor is the right to demand equivalents of the 
hanker at some future time. In other words, it is a case in 
Credit. 

(4) As this general distinction is vital, we shall lose 
nothing in the end if we make even a fourth exemplifica- 
tion of it. The United States Treasury receives silver 
dollars of its own minting from any person who chooses to 
place them there, and gives out in token what are called 
" Silver certificates " to the same amount, entitling the 
bearer to take out the dollars again at will, and thus the 
certificates being more convenient than the dollars and 
just as valuable become a part of the money'of the country. 
The Treasury is bound to exercise due care in the keeping 
of these silver coins, and to return them to the holders of 
certificates on demand, just as the elevator and railroad 
companies are under legal obligations to show diligence in 
keeping and transporting the wheat of our former example ; 
but the United States is not debtor to the holders of these 
certificates any more than the elevator company is debtor 
to the wheat shipper, and consequently there is no element 
of Credit in these certificates. Just so of the later gold 
certificate. On the other hand, the so-called greenbacks 
issued by the United States are also a part of the money 
of the country, but they are credit-money, inasmuch as 
they are a promise to pay to the bearer some time in the 
future so many dollars. The Treasury has never kept up 



280 PRINCIPLES OF POLITICAL ECONOMY. 

any special fund of gold and silver, with which to redeem 
the greenbacks. They rest back for their value on the 
good faith of the country. The United States is debior to 
the bearers, and these in turn are creditors, and tlie legal- 
tender quality of the greenbacks does not alter their char- 
acter as a form of pure credit. Both the elements of good 
faith and future time inhere in the greenbacks, as they do 
also in the bonds of the United States, while in the certifi- 
cates neither of these elements appears. 

However, circumstances easily conceivable and which 
were actually realized in the case of the famous Bank of 
Amsterdam, founded in 1609, might make the United 
States a debtor and the holders of the silver certificates 
creditors in the commercial sense of those terms. The 
Directors of the Bank of Amsterdam, towards the close of 
the second century of its beneficent existence, loaned out 
to the Dutch East India Company and to the City of 
Amsterdam large parts of the bullion, on which its certifi- 
cates (''bank money ") were based, unknown to the public, 
which felt unliinited confidence in the bank, and the result 
was in 1795, when the French invaded Holland and the 
facts became known, that l)ank money which had previ- 
ously borne a premium of 5% fell at once to a discount of 
16%, although the bullion tliat remained and the debts 
due the Bank were fully equal to redeem the certificates 
and were used for that purpose. So, if the United States 
should use, clandestinely or otherwise, the silver dollars for 
other purposes than to redeem the certificates on demand, 
the latter would undoubtedly both in law and fact be trans- 
formed from mere token-money (as now) into credit-money 
valid as against the United States as debtor, like the green- 
backs at present. 

Have we now compassed our first object? Do we fully 
understand, from the foregoing descriptions and distinc- 



COMMERCIAL CK EDITS. 281 

tions, the Nature of Credit ? If so, we are prepared to look 
narrowly into its Forms. 

2. Credit-rights are commonly, but not always, recorded 
upon paper ; bat it is important to observe, that the paper- 
document is the mere evidence of the right, and not the 
right itself, which lies back of the paper as substance to 
shadow, and persists intact even were the paper lost or 
destroyed. These paper instruments of Credit are com- 
monly contemplated as of two kinds. Promises to pay and 
Orders to pay, but there is not at bottom any radical differ- 
ence between these, the Right as between two persons is 
not affected by this superficial difference, as we shall see, 
and the present enumeration of credit-forms will proceed 
independently of it. 

a. Book Accounts. A charge in a trader's books is both 
a current and a legal evidence that the person charged has 
received a certain service, and has virtually promised to 
render the sum charged as a return-service. Book accounts 
are the most common of the forms of credit ; and if the 
person charged fails of his own accord to complete the 
exchange thus commenced, the law, in the absence of any 
proof to make the charge suspicious, collects it, if possible, 
and forcibly completes the exchange. The convenience of 
this form of credit is so great, that it is not likely ever to be 
disused ; and as between people who deal much with each 
other is very useful, inasmuch as their respective book 
accounts are set against each other in settlement, and only 
balances are required to be cancelled in money. It is for 
the benefit of both creditors and debtors, however, even 
when the same parties are both creditor and debtor, that 
such credits should be short in time and such settlements 
frequent, since in book accounts there is no interest on 
charges however long they run, and since in this way only 
can the creditor realize the full gain of the exchange, and 



2S'2 rm\(MPLES of political eoonomv. 

tlu' debtor keep fair lus niorountilo nanio. It" it be diflieult 
or impossible to follow strietly the oxeollent tinaiu'ial 
maxim, '* Pay as you go." the next best thino- to that is, 
** (io and pay." The gains of an exehange are lessened, 
or its terms beeome more onerous, just in proportion as 
tlelay in its completion is exjHM-ieneed or expected. Book 
accounts are subject also to this disadvantage as compared 
with other forms of credit, that their number and amount 
as against any pei"son are less likely to become publicly 
known, and therefore he is more likely to be trusted in 
this form by others beyond the point of his solvency and. 
their safety. 

b. Promissory Notes. These differ from Book accounts 
in that they are always either expressly or virtually on 
interest, and are consequently negotiable. They are issued 
by individuals, corporations, and Nations. If the principal 
be deemed secure, that is, if there be a thorough trust on 
the part of the holder in the maker of the note, the time 
of the i)avment of the principal becomes a matter of com- 
parative indifference, because the interest is compensation 
for ilelav, and is often the motive on the part of the holder 
for rendering that service of which the note is evidence. 
Indeed a long obligation, other things being equal, is com- 
monly preferred to a short one, and bears a higher price. 
When a note is sold (negotiated) by the original holder 
it becomes payable to the purchaser, or to each subsequent 
purchaser in turn, and thus may nui a devious round, may 
play a part in many commercial transactions, may be set 
off by the transient holder against a debt owed by him and 
thus cancel that, and when itself is cancelled by ultimate 
set-off or by any other motlc of payment the last holder 
takes the return for the service originally rendered by 
the first holder. The promissory notes of individuals are 
frequentlv discounted by Banks in a manner to be presently 



COMMERCIAL CREDITS. 283 

explained. These are always for short times, and are debts 
})Ought by banks on the personal security of the names 
upon the notes. The notes are founded on the relation 
of debtor and creditor, which is always a personal relation, 
and so differ in their nature from a mortgage^ which is a 
qualified title to a specific piece of property, usually real 
estate. A note secured by a mortgage is, as it were, 
absorbed into the mortgage, and becomes another thing 
from a common promissory note, or commercial paper, as it 
is called. A mortgage rests therefore on other grounds 
than a commercial trust in the good faith of a person. 

Corporations also issue promissory notes, and as such 
issuers become in a sense moral persons entitled to con- 
fidence according to the character and purposes of the 
individual corporators and the financial means and methods 
of the corporation itself. It is an old saying, that " corpo- 
rations have no souls " ; economists as such have no need 
to pronounce on that proposition ; the fact is enough for 
them, that the short notes of corporations are often dis- 
counted by bankers on the same ground as the notes of 
individuals are discounted ; and that their long-time obliga- 
tions, commonly called Bonds, are all the time bought and 
sold in the market like commodities. Many of the Rail- 
road bonds, of which immense quantities are in the markets 
of the world, rest back also for their security upon Mort- 
gages of the real estate of the corporations made over to 
Trustees to hold for the assurance of the holders of the 
bonds. The personal obligation of tlie corporators is thus re- 
inforced, much as a common mortgage reinforces the note 
or bond, to secure which the mortgage is executed. When- 
ever all the real estate of a railroad company becomes sub- 
ject to a mortgage, when there are previous partial mort- 
gages or liens, these latter take precedence in due order of 
any subsequent pledges or bonds secured by what is prop- 



284 PRINCIPLES OF POLITICAL ECONOHIY. 

erly called the consolidated mortgage. Such a mortgage has 
recently been executed by the Northern Pacific Railroad 
Company for $160,000,000. Railroad Bonds so fortified in 
proper and legal terms possess the higliest possible credit- 
security to their holders. When no such consolidated or 
"blanket" mortgage has been put on the property, first 
and second and third mortgages sometimes support bonds of 
primary and secondary and tertiary validity ; and sometimes 
so-called Income-bonds are issued, with or without mortgages 
behind them, for the payment of tlie interest on which bonds 
the net earnings of the corporations are specifically pledged. 
Frequently also simple long-time bonds resting on corpora- 
tion security only are negotiated without difficulty. 

It must be constantly borne in mind, that certificates of 
Stock in railroad and all other similar corporations are 
not credit-documents at all, but are mere evidences of so 
much proportional oivnership in the corporate property. 
They are not interest-bearing documents at all, although 
they may draw interest or rather dividends, if the property 
be prosperous. They are somewhat like deeds to land, in 
which no element of credit inheres. 

Nations too are moral persons in the same loose though 
binding sense as corporations, and as such often issue prom- 
issory notes on interest, commonly called in this country 
Bonds, in Great Britain Funds, and in some countries 
Stocks. These are ahya3^s pure credit. Nations give no 
mortgages. Yet they often borrow at a less rate of interest 
than the most solvent individuals or corporations can, as is 
seen by the fact, that British consols carry but 3%, and yet 
bear a premium in the present market. The term, "con- 
sols," is a popular contraction of " consolidated annuities," 
the Act to create which at 8%, out of a then confused 
mass of public debts at various rates of interest passed 
Parliament in 1757. The maximum of the British debt 



COMMERCIAL CREDITS. 285 

was $4,500,000,000 in 1815, and has now decreased to 
$3,467,787,960. 

The United States also sold its bonds at 3% for a small 
premium in 1882. It had borrowed of its own citizens in 
1862-65, both inclusive, about $2,500,000,000 on its bonds 
at different rates of interest and at different times of repay- 
ment : some of these bore gold interest at 6% annually, 
Government reserving the right to pay the principal in five 
years and pledging itself to pay it twenty years from date, 
and so these bonds were called " Five-twenties " ; others 
bore gold interest at 5%, becoming payable at ten and 
demandable at forty years, and so were called "Ten-for- 
ties" ; and still others bore greenback interest at 7^Qy%, 
the principal payable in greenbacks at three years, or fund- 
able in gold sixes, at the option of the holders, and these 
were named "Seven-thirties." Over $90,000,000 of this 
last kind of bonds were subscribed for by the American 
people in the course of a single week in the spring of 1865. 
The whole of our national debt issued prior to 1865 was 
made payable on a day certain ; the so-called " consols " 
of 1865 and 1867 and 1868 were payable not more than 
forty years from date ; while all the bonds authorized from 
1870 to 1882 were Consols proper, whose peculiarity is, 
that they never fall due so as to become a claim for the 
principal against the Government, but after a day fixed or 
on a condition fixed are payable " at the pleasure of the 
United States." ^ 

The separate States of our Union, as sovereign in their 
own sphere quite as much as the national Government is 
sovereign in its sphere, have unlimited power to contract 
debts for State purposes through their regularly consti- 
tuted authorities ; and consequently to issue promissory 
notes or bonds to liquidate such debts. New York com- 
1 John Jay EJiox's United States Notes. 



286 PRINCIPLES OF POLITICAL ECONOMY. 

meiiced in this way in 1817 the niaguititeni enterprise of 
the Erie Canal, to connect the great Lakes with the city of 
New York by an inhmd \vater-^^'ay for commerce, and the 
completion of this in 1825 made the State the '' P^mpire 
State," and the city the undisputed conmiercial metropolis 
of the Union. In a similar Avay Massachusetts undertook 
in 1862 the completion of the Hoosac Tunnel for a railway 
lengthwise of the State ; and although the process became 
unduly expensive, and great abuses sprang up in connec- 
tion with it, no one now questions that the pecuniary and 
moral resources of the State have been augmented, on the 
whole, by contracting the debt and pro Aiding by taxation 
for the liquidation of both interest and principal. The 
credit of Massachusetts, that is, the ability to bt)rrow 
money at low rates of interest, has been at times greater 
than that of the United States; mainly because the State in 
18(32 and onwards refused to avail itself of a depreciated 
national paper-money (greenbacks) made legal tender for 
all debts, with which to pay the interest on its then exist- 
ing State debt, but persisted throughout (alone of the 
States) to pay that interest so soon as due in gold coin. 
On the other hand, several of the States of the Union at 
different times, and under more or less of provocation and 
justification, have made a partial or entire repudiation of 
certain portions of their public debts, justly damaging to 
their individual credit, and even to the good name abroad 
of the whole i)eople of the United States. 

Counties and cities and towns may also issue interest- 
bearing bonds for public impi-ovements, which have a (paisi 
governmental character, but only under conditions and to 
a maximum amount prescribed by a law of the State. 

c. Bank Bills. These are a form of promissory notes 
not on interest, and thus differ t'loni tlie notes of ordinary 
corporations, and from the bonds of natit)ns and states and 



COMMKRrjIAL OltEDlTS. 287 

niujiicipalities ; but tlic issuing' Hank offers, as a sort of 
compensation for the privilege of circulating notes not 
on interest, to convert them into coin, that is, to pay them 
instantly on the demand of any holder. It is this proffered 
and immediate converlihility into coin that enables th(i 
promissory notes of a bank to circulate as money, while 
the notes of other corporations and individuals equally 
solid and solvent do not circulate as money. Jt must be 
borne in niijid, however, that this offer to convert them 
into the legal and ultimate coin-money does not essentially 
alter the nature of Bank Bills; they are a form of com- 
mercial credit; and although they are commonly issued 
against another form of such credit, namely, against the 
interes1>bearing promissory notes of individuals and cor- 
porations who resort to the bank for discount, this only 
complicates the exchange without changing its nature. It 
is a common, instance of exchanging one form of credit for 
another form which happens to have a greater currency 
or validity than the fii'st, and for this superiority of the 
bank credit the individual credit pays an interest, in other 
words, is discouiited ; and such exchanges of one form of 
paper credit for another, with or without a premium, may 
go on indefinitely; especially as credit-money in the form 
of bank Ijills, such paper may serve as a medium in many 
exchanges ; but ultimately, and before the entire series of 
transactions is closed, such bank bills are to be redeemed in 
coin, or taken in by the banker in payment of some debt 
due to him, in both which cases they are extinguished as an 
iastrument of .Credit. 

The Bank of England keeps out in circulation on the 
average <£ 25,000,000 in bank bills. It has been computed, 
that the average length of life of a Bank of England bill 
between its issue and redemption is about three days; and 
no bill once redeemed or received back over the counters 



288 PRINCIPLES OF POLITICAL ECONOMY. 

of the Bank is ever issued again. It is tlien placed on file 
for record only. The joint-stock and private banks of 
England and Wales circulate on the average rather more 
than £4,000,000 of bank bills of their own;*and no bank 
bill of any kind is legal in England and Wales of a less 
denomination than X5. The ten Scotch banks and their 
branches keep out in bills about £5,000,000; six out of 
the nine Irish banks and their branches issue on the 
average not far from £10,000,000 ; but both the Scotch and 
Irish banks are allowed to put out £1 bills. 

Bank bills, as a form of paper credit not on interest, but 
ostensibly redeemable in coin on demand of the holder, 
have been issued in the United States by more parties and 
to a larger extent and with more recklessness as to redemp- 
tion than in any other country. Omitting all reference to 
Colonial issues, and confining the outlook to the first cen- 
tury under the Constitution, let us note, that when the 
present national government went into operation in 1789, 
the " Bank of North America " in Philadelphia and the 
"Bank of New York" in New York and the "Bank of 
Massachusetts " in Boston had been opened for business, 
and all three were State banks issuing bills convertible into 
coin, though each confined its business mostly to the city 
in which it was located. Tavo years later under the 
auspices of Alexander Hamilton, then Secretary of the 
Treasury, the first " United States Bank " went into opera- 
tion at Philadelphia under a charter from Congress that 
was to run twenty years with a capital stock of #10,000,000. 
At first no bills were issued by this bank of a less denom- 
ination than 110 ; the money was popular and was converted 
on demand ; the Bank was prosperous, and paid dividends 
to stockholders never falling below 8% and frequently 
rising to 10% annually; as the time approached for the 
charter to expire, the stockholders were anxious for a 



COMMEECIAL CREDITS. 289 

renewal of their privileges ; but the opposition to them in 
Congress was now strong, owing mainly to the increase in 
the number of State banks from 3 to 88 ; and accordingly 
the recharter was defeated in the House by one vote, and 
in the Senate also, by the casting vote of the Vice-Presi- 
dent, and the Bank was obliged to wind up its affairs in 
1811. 

Then came in a sort of mania for the creation of new 
State banks, under the hope that these, now there was no 
National Bank, might obtain the Custody and temporary 
use of the national funds, and especially might furnish the 
country with paper money in the shape of State bank bills. 
The number of banks went up to 246 in 1816. So many 
bank bills were put out, and became so much distrusted, 
and so many were presented for redemption, that the banks 
could not respond in coin, and in the fall of 1814, there 
was a general stoppage of specie payment in all the banks 
of the Country excepting those in New England. General 
resumption of specie payment by the banks did not take 
place till 1819. New York bank bills went down to 90%, 
those of Philadelphia to 82%, those of Baltimore to 80%, 
and those of Pittsburg to 75%. 

Under these circumstances the Second Bank of the 
United States went into operation in January, 1817, also 
with a charter to run twenty years, with a capital stock of 
135,000,000, of which the national Government subscribed 
one-fifth. The new Bank helped indeed the State banks 
to resume specie payments, as was a part of the purpose, 
but it pushed its own bills into circulation with such eager- 
ness, that it is thought $100,000,000 of them were in the 
hands of the people, before the first year was out. In this 
way the Bank fell into difficulties. Its bills were distrusted. 
Coin came to bear a premium over them of 10%. Presi- 
dent Jackson began his famous contest with the Bank seven 



290 PRINCIPLES OV POLITICAL ECONOMY. 

years before its charter was to ex})ire, and took care that it 
went out of being the same year that he went out of office, 
in 1837, namely. 

The next year the State banks increased in number to 
675, and continued to increase till 1862, when there were 
over 1500 of them, and when the issue of the " Greenbacks " 
by the national (jovernment interfered witli what liad been 
their exclusive issuing of the paper money after 1837. In 
1857, before the commercial panic of that year, the aggre- 
gate of their bills stood at .t214,000,000, the largest it ever 
reached. These bills were nominally convertible into coin 
at the will of the holders, but they were never actually so 
convertible for any great length of time. The ratio of 
their volume to the specie reserved to redeem it was always 
a very high lat io. For instance, the average for the whole 
country in January, 1803, was 4:1; in Rhode Island 12 : 1 ; 
and in Vermont 28 : 1. Such a paper money can be called 
convertible only by a stretch of courtesy. 

It was wisely determined by the People to abandon this 
loose form of paper money, and in 1863 went into opera- 
tion the present national banking system, under which 
originally i1r300,000,000 of bank bills were authorized to be 
issued in the aggregate, but this limit was extended in 1870 
to 1354,000,000, and the Act-of 1875 removed all restric- 
tions on the total amount, while there have always been 
restrictions on the amount that can be issued by anj'^ one 
bank in the system. By the law of 1SS2, national banks 
may withdraw their bills by depositing lawful money in the 
Treasury to take them up, and then take back the propor- 
tionate amount of the bonds held for the security of the 
bills. There were outstanding Dec. 26, 1883, 1341,320,256 
of these national bank bills, but their volume declined 
under the law of 1882 to 1151,702,809 on Oct. 4, 1888. 
These bills were from the first redeemable in greenbacks, 



COMMERCIAL CREDITS. 291 

which were themselves, however, irredeemable in gold and 
silver till New Year's, 1879, since which time till the present 
all the paper money of the United States of both kinds 
has been convertible into coin at the will of the holder. 

d. Bank Deposits. We are studying in order the forms 
of commercial Credits, and we have now come to that one 
which is central in the operations of Banking, and accord- 
ingly this is the place for us to understand clearly what a 
Bank is, who a Banker is, and what are the motives actu- 
atinof at once the Banker and his Customers. A Bank is 

AlSr INSTITUTION FOR THE CREATION, MANAGEMENT, AND 

Extinction of Credits. Money of any kind plays a very 
subordinate part in the general operations of banks, which 
live and move and have their being in the sphere of pure 
Credits. Bankers are buyers and sellers of credits. As mer- 
chants are dealers in commodities, so bankers are dealers 
in credits, buying (1) some credits with other credits, 
(2) some credits with money, and (3) money also with 
credits. Before unfolding these three operations of bank- 
ers in their motives and profits, a glance backward to the 
origin of banks would be a help to us in grasping their 
nature and benefits. 

The word " bank " meant originally a mass or pile or 
ridge of earth, as we still say, a sand-bank., and the banks 
of a river. When first applied to commercial transactionij, 
the word had a different meaning from what it has at pres- 
ent, although the idea of credit has inhered in it from the 
first: in 1171, the Republic of Venice, being at war, 
ordered a forced loan from its citizens, and promised to 
pay interest on it at 5 % ; and certificates were issued for 
the sums paid in, and public commissioners were appointed 
to manage the payment of the interest and the transfers of 
the certificates, which were made negotiable. The Italian 
word applied to such a public loan is monte, but as the 



292 PRINCIPLES OF POLITICAL ECONOMY. 

Germans were llien strong in Italy, the German equivalent 
word, hanlx^ came to be used alongside of it and instead of 
it. It meant this connnon contribution of the citizens to 
the wants of the State, represented by the mass of the cer- 
tificates, and came to be applied also to the place wliere the 
commissioners paid the interest and transferred the shares. 
Two. other such loans were contracted there afterwards, 
and an English writer, in 1646, quoted by Macleod, speaks 
of the " three hankes of Venice,''' meaning these three pub- 
lic debts, including the evidences of them and the place 
where they were managed. 

The Bank of England also was in its origin in 1694 an 
incorporation of those persons willing to subscribe to a 
public loan in time of stress, as "• The Governer and Com- 
pany of the Bank of England." The subscribers to a loan 
of £1,200,000 became an association, or bank, on the condi- 
tion that the Government should pay interest to the lenders 
at 8% annually, and also £4000 a year in addition for the 
management of the bank, that is, of this debt of <£ 1,200,- 
000 which was the sole capital stock of the new Company, 
which was authorized to issue an equivalent amount of 
bank bills to circulate as money. The capital stock was 
of no use, so far as redeeming these bills was concerned, 
the stockholders must furnish other money for that pur- 
pose besides wliat they have loaned to the State, but the 
ownership of so much of the public debt divided among 
the shareholders, made the Bank respectable, and tended 
to give public credit to its bills, which at first were paid 
promptly in coin on demand, and thus the Bank, by in- 
creasing the volume of money and l)y showing confidence 
in the stability of the State, strengtliened the revolution- 
ary position of William and Mary, and consequently the 
Whigs were the friends and the Jacobites the enemies of 
the Bank. This function of issuing bills or promissory 



COMMERCIAL CREDITS. 293 

notes designed to circulate as money, thus begun and still 
continued by the Bank of England, is much less important 
in modern banking than the other two functions of receiv- 
ing Deposits and making Discounts, but it was the func- 
tion on which the turn began to be made from the older 
to the newer modes of Banking, All that is needful to be 
said on this tertiary or money-issuing function of Banks 
has been already urged under the last head. 

The two Banks of the United States in succession, as 
they were more or less modelled after the Bank of Eng- 
land, gave the same prominence to the function of issuing 
paper money, under the belief that government bonds 
afford the best security for the redemption of bank bills, 
an idea that underlies our present system of National 
Banks also ; and, moreover, those two great banks began 
to teach the people of the United States something of the 
mysteries of Deposit-banking^ the point that we have now 
in hand. One-fifth of the capital stock of the first Bank, 
12,000,000 out of 110,000,000, was subscribed by the 
national Government ; and besides, the proceeds of the na- 
tional taxes as they were paid in were passed over to the 
Bank as Deposits, that is to say, the Bank bought this 
money of the Government, paying for it with a Credit ; 
and then properly used the money as its own in paying 
expenses and in discounting paper. Bank deposits do not 
belong to the depositors, but to the bank ; which has thus 
bought money with credit; and when Andrew Jackson 
suddenly removed from the second Bank of the United 
States the national moneys deposited there, and placed 
them "in the custody," as he expressed it, of certain 
selected State banks, these amounted at the moment to 
810,000,000, and the discount line resting in part on these 
deposits was at the time over -$60,000,000, he removed 
them under a strong misapprehension of the nature of such 



294 PRINCIPLES OF POLITICAL ECONOMY. 

deposits; and their removal affected credit, and disarranged 
business to a remarkable degree, and caused intense ex- 
citement all over the Union. Depositing those national 
moneys with the Bank was a trade between the Govern- 
ment and the Bank for the time being. The Government 
took in return for the moneys a Right to demand of the 
Bank in future by cheque Or otherwise sums at its con- 
venience to the aggregate of the sums deposited; the 
moneys became the property of the Bank to be used at its 
discretion in its ordinary business ; the Government took 
its return-service for the moneys in a Credit, that is, a right 
to draw out at its convenience in the future corresponding 
sums ; there was a commercial understanding in that case 
between the Government and the Bank underlying the 
buying and selling involved in the Deposit, as there always 
is between depositors and their banks ; the banks are 
always bound to order their business in such a way as to 
be able to respond to every depositor's call for money, 
when it comes ; but banks in general find practically that 
a cash reserve of one-third of their Deposits is ample to 
answer the current demands of their depositors, and the 
remaining two-thirds may be safely used in discounting 
short-time commercial paper to their own profit ; Deposits, 
accordingly, are not placed " in the custody " of the banks 
receiving them ; they are really bought by the banks of 
their customers, who receive in return certain privileges 
and credits that they })refer to the " custody " of their own 
moneys ; and under these general motives on both sides, 
there has grown up in all commercial countries an immense 
line of Bank Deposits so-called, and perhaps we may say 
that the principal function of banks at present is to buy 
these deposits with their Credit, and then to handle them 
in further operations to the convenience of their customers 
and to their own gain. 



COMMERCIAL CJREDITS. 295 

Under our present national banking system the Gov- 
ernment is still a depositor of public moneys in some of 
the banks designated as " depositaries." At the close of 
the fiscal year, 1888, there were 290 of such depositary 
national banks, and the Treasurer held United States bonds 
of the face value of $56,128,000 and the market value of 
168,668,182 in trust for these banks to secure public 
moneys lodged with them. This system of national 
deposit with the banks began in 1864. The total held by 
the banks June 30, 1888, was 158,712,511, an increase 
during the year of $35,395,633. 

But our concern is especially with the Bank Deposits 
of individuals, with their motives in making these, and 
with the motives and the methods of the bankers in hand- 
ling them. In order to draw the confidence of the people 
in its locality, a bank must not only be, but also seem to 
be, well-to-do and prosperous. Most bankers find it to 
their account to become known owners of public stocks ; 
and in many cases, as in the present national banks of this 
country, are required by law to own such stocks, and this 
gives them a kind of credit and public standing scarcely 
to be reached by the ownership of ordinary property. 
Thus the Bank of England held at the outset £1,200,000, 
and now holds X 15,000,000 of securities, mostly of the 
public debt of England. As merchants begin by laying 
in stocks of goods of the kinds they purpose to deal in and 
offering them for sale, so bankers begin by bringing 
together money and credits of their own in order to attract 
to themselves in the way of buying and selling the money 
and credits of other people. In order to deal successfully 
in credits the banker must have credit, that is, he must 
have the reputation of having property of his own, and of 
being an honest and careful manager of his own affairs and 
of the affairs of others so far as they are intrusted to him. 



296 PRINCIPLES OF POLITICAL ECONOMY. 

Each of our present national banks, now (1890) 3150 in 
number, must have by law a paid-up capital of not less 
than 1100,000, and in cities of 50,000 people their capital 
must not be less than $200,000 each, except that in 
places having less than 6000 inhabitants banks with not 
less than !|50,000 capital may he organized at the discretion 
of the Secretary of the Treasury. The main purpose of 
all this is to secure strong financial organizations fitted to 
draw the confidence of the communities in which they are 
placed, and in this manner and by means also of constant 
national supervision to attract the Deposits of the people 
to the banks. 

Now, as was said a little while ago, perhaps the central 
function in banking is for the banker to receive his cus- 
tomer's money and also his credits falling due, and to 
render to him in return for these a credit^ that is, a right 
to demand from himself an equal sum at a future time 
or times. The evidence of this right is entered on the 
banker's books, and usually too on the customer's pass- 
book, and thus becomes what is called a Deposit. The 
ownership of the money and of the credits deposited 
passes over completely from the customer to the banker. 
It is a complete case of buying and selling to the mutual 
profit of the parties. The banker has the right to do just 
what he pleases with his deposits, and the customer has a. 
right to draw cheques on his credit as and when he 
pleases ; only the banker's entry of the transaction on his 
books is a virtual and a legal promise to pay that amount 
to his customer, and therefore he must be ready to re- 
spond to his customer's call, whenever the latter demands, 
not his own money, but so much of his banker's money. 
A deposit, accordim/li/, is not the very thing deposited, hut 
a credit. It is the banker's promise and the depositor's 
property. It is in this way that a banker buys ready 
money with a credit. 



COMMEECIAL CJREDITS. 297 

The motive, then, that leads the depositor to intrust his 
money to the banker is the desire, not to have that specific 
money kept safely for him, for he lost possession of it 
absolutely when it passed the counter, he sold it and took 
his pay in something else, but rather to have the unques- 
tioned right to call on the banker for such sums (not to 
exceed the deposit in the aggregate) and at such times as 
may suit his own convenience. He has such confidence 
in the integrity and solvency of the banker, finds it so 
practically convenient to have dealings with him, and 
comes to have certain minor privileges at the bank in 
other relations over non-depositors, that he quite prefers a 
credit on the banker to the possession of the money itself. 

The corresponding motive of the banker to receive his 
customer's funds on these terms is that he finds by expe- 
rience (his own and others'), that he can safely use a 
large portion of these moneys deposited in other opera- 
tions in credit profitable to himself, and at the same time 
be practically sure of meeting all his customer's calls for 
money as they are made. Every good banker finds out, 
that many of his customers wish always to leave a balance 
in his hands ; that while some of them are constantly 
drawing cheques on him for cash, others of them are as 
constantly depositing with him in cash ; and that con- 
sequently he can properly and safely use a large part of 
the money he has purchased with his credit to purchase 
other credits with. Deposit-banking, therefore, is not only 
convenient and profitable for the depositor, but also 
excellent and profitable for the banker. 

Besides these two parties benefited, there is a gain, too, 
for the community at large in deposit-banking ; inasmuch 
as a new capital as such has been thereby created, a series of 
new values, which would not otherwise have existed at all. 
Were there no deposit-bank in that locality, every man now 



298 PRINCIPLES OF POLITICAL ECONOMY. 

a customer of it would of course keep his own reserves for 
himself for prospective contingencies : now, all these little 
reserves are aggregated in the bank, the convenience of 
them for each customer's contingencies is just as great as if 
he kept his own in his own safe or wallet, but the banker 
tinds that he can use, say two-thirds of the whole, and still 
answer each customer's call. Here is a new capital. Here 
are scattered valuables brought together to be loaned out 
to a profit, which were otherwise barren and useless for 
the time being. Industry is quickened in a wide circle, 
products are created and brought to market, wages are 
paid and profits are gained, in direct consequence of bring- 
ing together under favorable auspices for safe loaning the 
little hoards and driblets of many individuals, which were 
practically useless in isolated hands. 

It may easily be objected at this point, that it is entirely 
possible that any banker might be called upon to pay off 
all his deposit-liabilities at once in money, which, if it hap- 
pened, would break him of course ; so it is abstractly possi- 
ble that all the lives insured in a Life Insurance Company 
might terminate in one day, in which case no Company in 
the world could meet its obligations ; and so it is abstractly 
possible that all the houses insured in a Fire Insurance 
Company might be burned up in a single night, which, if it 
happened, would cause the collapse of the soundest com- 
pany ; but in all these cases of possibility there is a certainty 
that the possibility will not become a fact. Ex nihilo nihil Jit. 
A supposition practically impossible to become a fact can 
yield no logical inference whatever. The Greek language 
has a special grammatical form for a hypothesis impossible 
to be realized in fact : would that the English had also 
such a form of speech ! It would save us a mess of bad 
reasoning. If, however, any banker may have misjudged 
for his locality at any time the proper ratio of reserves kept 



COMMEKCIAL CREDITS. 299 

to deposits received, and be crowded in consequence, lie 
must sell some of the securities bought with the excess, or 
borrow money on them. 

Surprisingly large is the amount of bank deposits in all 
the leading commercial nations of the world. The average 
public and private deposits of the Bank of England, on 
which no current interest is paid by the Bank, amounts to 
about £40,000,000 all the time. The ten joint-stock banks 
of London carry about £80,000,000 in private deposits, of 
which those to remain some time draiv an interest, but 
those lodged on current accounts and on call draw none. 
Scotland has carried deposit-banking further and to greater 
advantage than any other country in the world. There are 
now no private banks in Scotland, but the ten joint-stock 
banks with their numerous branches scattered to every vil- 
lage in the land hold constantly about X 70,000,000 as 
individual deposits, on which current interest is allowed, 
and so the habit of keeping one's account with a banker 
has become universal with the people. No one thinks of 
keeping money to any amount in his house or about his 
person, and consequently house-breaking and highway 
robbery have almost ceased. Bankers even attend all 
the great fairs in the country to receive deposits and to 
pay off cheques. Credit in this form and in another form 
soon to be described treads its utmost verge in Scotland. 
Although in the United States the custom of keeping depos- 
its with bankers and drawing cheques against them has not 
gone nearly so far as in Scotland, and not nearly so far as 
it will go in the immediate future, yet the aggregate of 
individual deposits in the national banks alone, Oct. 4, 1888, 
was $1,350,320,861, an increase in just seven years of 26%. 

e. Bank Discounts. The credits that are discounted by 
bankers may be either the promissory notes of individuals 
and corporations already characterized, or the Bills of 



300 PRINCIPLES OF POLITICAL ECONOMY. 

Exchange soon to be characterized, but the entire function 
of discount is so peculiar, that the paper subjected to it 
oup'ht to be enumerated in a classification of the instru- 
ments of Credit. The discounting of commercial paper is 
the second essential function of banking, as the buying 
and handling of deposits is the first; and it is more in 
accordance with genuine hanking to pass the price of the 
paper discounted to the seller's credit in the form of a 
deposit, that is, to buy one credit b}^ creating another, than 
to pay the money over the counter at once, and thus to 
buy credits with money. Those who do the latter are 
called hill-dheounters rather than bankers, but most of our 
bankers do both, though there is a tendency towards the 
separation of the two in this country also. 

Manufacturers and wholesale merchants usually sell 
their goods on time, as it is called, say three or six months. 
Debts are thus created, or to say the same thing in other 
words. Credits are thus given. The manufacturer or whole- 
saler is creditor and the jobber or retailer is debtor. But 
a debt is property ; and the creditor in this case wishes to 
avail himself of his property at once for further produc- 
tion ; so he either takes a Promissory Note from his debtor, 
or draws a Bill of Exchange upon him, and this piece of 
property is ready for sale. Neither piece mentions interest 
expressly, but the face sum virtually covers it as con- 
templating discount. Banks have been organized for the 
express purpose of buying for their own profit and for the 
convenience of business such pieces of property; some 
banker, accordingl}^ buys this particular piece, that is to 
say, this creditor passes over to this banker the commercial 
right to demand payment from this debtor at the end of 
three months, and receives in return from the banker either 
money direct or so much of the banker's credit, that is, a 
deposit in favor of the creditor on the banker's books. 



COMMERCIAL CREDITS. 301 

For furnishing this creditor either with ready money or 
a more available credit in lieu of his mercantile paper, the 
banker charges of course a percentage. This is Discount. 
Discount is the difference bettveen the face and the price of 
the paper. This percentage called discount is the chief 
source of profit in ordinary banking. It is virtually com- 
pound interest on the sum advanced till the maturity of 
the paper, when the banker realizes from the debtor its full 
face. 

The following is a common form of a bankable note: — 



$1,000 WiLLiAMSTOWN, Mass., Nov. 10, 

Three months after date I promise to pay to the order of Joshua 

Swan, one thousand dollars, payable at the Williamstown National Bank, 

value received. 

Due Feb. lo/^ Leandee Allen. 

When Swan has put his name on the back of this note, 
that is in bank phrase, has indorsed it, in token that he 
thereby at once sells and guarantees it to the bank, it is 
then discounted on the strength of the two names, Allen 
and Swan. As Allen technically takes the advance from 
the bank for his own benefit, he is technically expected to 
take up the note when it matures, and if he do not, the 
bank falls back on Swan, who is equally bound with Allen 
to see that it is paid at the proper time. Two names 
are nearly always, not always, requisite to a note accept- 
able for discount at a bank ; and more names merely 
strengthen the note, since it is discounted on the combined 
validity of all the names upon it. 

One obvious advantage of discount is, that it tends to 
make all capital active and thus productive. It enables 
the banks to sell their credit and make a gain, to use a part 
of their money deposits to buy mercantile paper with, and 
so get a bank interest on them ; it enables dealers in com- 



302 PRINCIPLES OF POLITICAL ECONOMY. 

niodities to realize in cash minus the discount the sum of 
what they have sokl on time ; and by means of accommo- 
dation notes or bills, which only differ from the others in 
that there is no actual debt between the parties, business 
men may swell the volume of their business temjoorarily, 
and non-business people may borrow small sums for con- 
venience or emergencies. Bankers have not always credit 
enough or money enough from their depositors to buy in 
either mode all the good paper that is offered to them, in 
which case, they raise the rate of discount unless the law 
forbids, or by easy evasions even when the law forbids ; or 
else accommodate regular customers and large depositors 
first, or buy of all that are " good " a certain proportion 
only. 

The discount line of 3140 national banks reporting 
Oct. 4, 1888, was $1,674,886,285.29. 

It is thus through the purchase of discountable notes for 
money, that banks derive their partial character as money- 
lenders. Also, such reserve sums as they do not wish 
to invest in negotiable paper, on account of the time in- 
volved before such paper matures, banks frequently loan 
on call to those customers who have good collateral secu- 
rities to pledge for the repayment of such loans. The 
terms of such a contract give the bank full authority to 
sell such collateral "a^ the Brokers' Board or at public or 
private sale, or otherwise at said bank's option, on the non- 
performance of this promise, and without notice.''^ So far 
forth banks become direct money-lenders. It ought also 
to be added, that promissory notes with a single name (or 
more) are often discounted by banks partly on the strength 
of collateral securities deposited to fortify the names upon 
the notes. 

/. Bills of Exchange. A Bill of Exchange is a written 
instrument designed to secure the payment of a distant 



COMMERCIAL CREDITS. 303 

debt without the transmission of money, being in effect a 
setting-off or exchange of one debt against another. It 
is in form and in several technicalities different from a 
promissory note, inasmuch as it is an order to pay instead 
of a promise to pay, and inasmuch as the maker of a note 
is always debtor and the drawer of a bill of exchange is 
always creditor ; but all this makes practically very little 
difference between the two as instruments of Credit, since 
nearly all bills of exchange come into banks in the way of 
ordinary business, either for discount or collection, and as 
the banks care nothing except for names, the form of the 
purchasable paper is a matter of indifference to them. 
The following is the essential form of an inland bill of 
exchange : — 

83,000 PiTTSFiELD, Mass., Oct. 16, 1889. 

Four months after date pay to the order of John Kent three thousand 
dollars, value received, and charge the same to account of 

To Eli Tkipp, Boston, Mass. Dan Storks. 

In the case of this bill, which may serve as a sample of 
thousands, Storrs is the drawer, who is creditor in relation 
to Tripp, and Tripp is drawee, but Storrs is debtor in rela- 
tion to Kent, who is the payee. A bill of exchange is the 
sale of a debt, in such a way that two debts are so far 
forth set off against each other, and both transactions are 
closed without sending any money at all. Tripp owes 
Storrs, and Storrs owes Kent, and so Storrs pays Kent by 
an order on Tripp. As this is a bill at four months, Kent 
will doubtless send it to Tripp for his acceptance, as it is 
called, that is, his acknowledgment that he owes Storrs 
to that amount, and that he will pay the sum to the holder 
of the bill when it becomes due. An acceptance is writ- 
ten on the face of a bill, and an indorsement upon the 
hack of the note : the initials are sufficient for the name of 



304 PRINCIPLES OF POLITICAL ECONOMY. 

an acceptor, but the full business name is usual for an 
indorser. 

Thus a bill of exchange is the formal sale of a debt, in 
order to liquidate thereby another debt, when the parties 
to the transaction live in different and distant places. 
Storrs does business in Pittsfield, and Tripp in Boston, and 
it is a matter of comparative indinercncc where Kent lives, 
unless there is trouble at tlu; time of collection, for he will 
j)erha])S neootiate this bill again, that is, make use of it to 
pay some debt that he liimstdf owes. It is not often that 
the same person, as Tripp, happens to owe another person 
in a distant town, as Storrs, the same amount as Storrs 
owes another person somewhere, as Kent ; but by two bills 
of exchange, one drawn by each creditor on liis own debtor, 
and then each set off against the other, through the simple 
and beautiful expedient of bank bahmccs, substantially the 
same advantages are reached as if it always liappened so. 
Many bills of exchange are drawn at su/ht, as it is called, 
in which case the payee presents it for payment to the 
drawee, there is no acceptance and no discount, and a bill 
of this kind becomes the same as a cheque. 

Time bills, however, are usually discounted : the payee 
indorses his claim over to a fourth party by name, or, by 
what is called an indorsement in blank, that is, by merely 
writing his own name on the back of the bill, makes it 
payable to bearer : when banks buy these bills for discount, 
it is on the joint credit of acceptor and drawer and payee, 
and in that order of validity and precedence : a promissory 
note may be protested by a bank without notice to the 
maker, but a bill of exchange cannot be without notice to 
the drawer: a i)romiss()ry note has two parties to it, a 
debtor and a creditoi- ; while a bill of exchange has three 
parties to it, two creditors and a debtor. 

Inland bills of exchange, both time bills and sight bills, 



COMMERCIAL CREDITS. 305 

are very convenient in settling debts between distant places 
without the costly, and more or less hazardous, transmis- 
sion of money back and forth ; besides this, time bills pos- 
sess the very useful function of enabling a debt due from 
one person to avail the creditor as a means of obtaining 
credit from a third party in discount ; and in addition to 
these two points of benefit, it is plain, that the common 
use of bills of exchange in all their forms releases from 
use large amounts of money that would else be needful in 
trade. The less money in use in any country beyond a 
certain point, the better, because, if coin, it costs much to 
mint and maintain it, and if paper, it is difficult to make 
and sustain it of full value. 

Bankers sometimes change what they call " exchange " 
for settling debts between distant places in the same coun- 
try ; in some cases there may be a sound reason for this, 
in other cases there is none, but in all cases it adds a little 
to the profits of the banks for handling the bills of exchange ; 
the principle of charging an " exchange " is this, — when 
one place as Chicago draws more bills on another place as 
New York than suffice to cancel the bills drawn at that 
time })y New York on Chicago, the point at which the 
larger indebtedness lies is the point for sending drafts to 
which banks naturally charge a percentage ; perhaps the 
idea, which is actually realized in foreign exchange, that 
money may have to be sent to liquidate such a balance, 
may have brought in the custom of charging " exchange " 
in such cases ; and there are instances aside from such a 
supposed balance, in which there may be an extra cost of 
collection in some form to the bank, that may justify an 
"exchange" charge; but there is another principle coun- 
terworking and often neutralizing entirely this alleged 
doctrine of a " balance " of debt as between two distant 
places, namely, that the chief settling place and commercial 



300 PRINCIPLES OV rOLiriOAL ECONOMY. 

oeuti'o of a I'ouutrv, surh as Now \ i>rk is, draws ttnvaids 
itsolt' tnnu tlio w hoU* rin-uit with siirh I'oive, overybody 
w amino- a b;ilaiu'0 thoro and having- Doi'asiiin to send I'unds 
thilhor, that drafts on siudi a phn'(> avt> apt to hear a pre- 
niinni withont any referenee to its t'on»|)arative indehleihiess 
at tlie time. 

Very similar to tliese iidand hills in their natnre and 
eourse antl usefnlness are Ftneioii Uills o( Mxehange, 
whielu as a vastly important tuple, espeeially in its rela- 
tions with Foreign Trade, we must now study minutely 
and eom])letelj. Conunereial relations between tw'O eoun- 
tries, let us say, for instance, France and England, always 
give rise to a mutual indebtedness of their merchants ; if 
tliese reei[)roeal debts were all to be paid by the actual 
sending- o( money to and from, [hew would have to be a 
constant and expensive^ and more or less lia/.ardous out- 
waril and inwaril tlow of the precious metals in respect to 
eaeh eountry ; all whieh necessity is neatly obviated by 
the use o{ reci})rocal bills of exchange, ami coin is only 
transmitted to settle the balances on whichever side there 
may ha[>[HMi an exei>ss of debt at tlu' time. Ficui'h dealers 
are always sending goods to England, and English dcalei's 
goods to France; and for what they send to I'higlaud tlio 
French merchants draw bills of i>xrhangt' on the parties to 
whom the goods are consigned, and the FjUglish merchants 
draw similar bills on their debtors in France ; then these 
bills arc bought up by bankers or brokers in either coun- 
try, and \irtually exposed again for sale through new bills 
drawn against them to any i>arties w ho may havi> debts to 
pay in the other country, 'i'hus bills on London, in other 
words, on Fnglish ih-bttu-s, are always for sale in l-'iauie; 
and bills on France, that is, on French di'btors, are always 
for sale in London ; the reciprocal debtors of the two 
countries, therefore, instead of siMiding coin to i-ancel their 
debts, buv and transmit these bills. 



COMMKL'^IAI; OltlCDfTH. .'{07 

LcAj iih lHk(! a Ham[j|(; inHbuici;. I'icrro Ai ('f>. f;!' I';l,ri;^ 
H(!H(] a cai'^'o ol' vviiif; worUi XI 000 in Imi^Ii'hFi rnoricy io 
John l>;u'',l;i,y of London. r>;i,)(;l;i,y 1,Iiuh hccoincH ind<'J>l,f','i 
to t;li(; ParJH (iiTri U> UuU, iunount, an<) I'ictri; A/. Co. dnuv 
!i,l/ once;, Hr) Hoori !i,h tlic <;;i,r^o in rlf;Hf);d,f;}i(;d, !i, \)'i\\ in 
IViincH I/O I, lie, c.'jui v;i,lc,nt, of i^lOOO. If l.tioy Ui(;rri;-i(;l VOH 
li;i,V(; no debt/ to pay in LoJidon, they will H<;ll thiH f;ill 
innncdiatcly to Ji, I'iiri.s hiuikci- oi- [>iok(;r (W tin; (;x<',liJUig(; 
\)t; I, hen Jit \)'-u) I'of its lull I'acf; ml/nuH interest lor the l,ifn(; 
it }i;i,H to run, Hay two rnontfiH; this bfok(;r Ih now ready to 
Hell thin hill !i,^'ii,in, or what in the name, hin own bill drawn 
on the Hti'(!ngth of it, to anybody in I'arin who may have a 
debt to |»!i,y in London ; juid iho ]ydviy in Lr))idon who 
i'(;eeiveH it in lifjnidiition of a Frfjneh de.bt to hitn, pfeHenl^H 
it at niJitnr'ity to John I>arelji,y for fayrnent. ThnH one 
hill of exeh;ing'e Herve.H thf! ejKJs of two ereditons iind one 
d(;btor: Pier-re Ai do. get their [>!i,y for the wine;, the Ivon- 
don piirty gets hiw ])',iy for goods, and P>ii,rel;i,y [iayn liin 
deht, by ineiuis of it. A hill di"i\vn in London for a fjarg'O 
of h;udw;ire H(!nt to Piiris in Kiniilai'ly negotiated with a 
liOndon hrokf;r or h;i,nk(;r', and (inds il,H wa,y Hiniilarly to 
P'riUiee in |>!i,yrri(;nl, of soinr; Lnglish d('J>t owe.d the/'f;, and 
(jndn itn eonrs*! wlxjn it r(;a(;h(;H thf; l''/(;neh i'lttii on whifdi 
it w;iH origin;i,lly dntwn. 

We ;i,re now in position to nnder'st;i,nd e,le;irly wluit is 
(ne,!uit \)y the jxir of A'xc/iMW/e in itn eomrnercial fnot eoin- 
ag(!; import. The nu',v(;\u\,i\iH in Paris, wfio liave debts 
due to them from London, dr!i,w hills of exefiange, for the 
iimonnt of ijiese debts ; and, throngh tfie agenf;y of mid- 
dh;men, go into the triiuket to H(dl iJirjse [nils to othei' P;i,ris 
dejiJers who have debts to [ay in Lonrjon. If tbe l'orrru;r 
claHH })iive, a larg(;r ;i,moNid, to Hell th;i,n 1,he latter have 
ooeasion to biiy, in other words, if there be a bi.rger sunonnt 
of debtH due from Loridon to Parin than fiom Paris to Lon- 



308 PKINCIPLES OF POLITICAL ECONOMY. 

don, then the natural competition of the sellers in Paris of 
the bills on London will lower their price somewhat in 
that market (Paris), in order, as usual, that the Supply 
and Demand may be equalized there. In this case the par 
of exchange is disturbed, a bill on London for XlOO in 
francs may not sell for over X99, and the exchange is then 
said to be 1% against London, or, which is the same thing, 
1% in favor of Paris. 

The par of Exchange, accordingly, between two coun- 
tries, depends on the substantial equality of their commer- 
cial debts. In the above example, if the exchange as 
against London in favor of Paris continue long, and espe- 
cially if the premium of 1 % on bills drawn in London on 
Paris be sufficient to cover the expense of the transmission 
of specie from London to Paris, gold will begin to flow 
from London to Paris, because the debtors there may find 
it cheaper for themselves to buy and send gold than to pay 
the high premium on bills ; and thus the equilibrium of 
payments and the commercial par may be restored. Also, 
this par tends to restore itself, without any sending of 
specie, in this other perfectly natural and effectual way: 
if bills on Paris are at a premium in London, for the same 
reason that they are so will bills on London be at a dis- 
count in Paris ; therefore, there will be a direct encourage- 
ment to the extent of the premium for exportation of goods 
from England to France, because on every cargo thus sent 
bills can be drawn and sold in London for a premium; 
while the more bills on Paris thus offered in London, the 
more the premium disappears of course, and the par will 
be restored so soon as the bills on Paris substantially equal 
the bills on London offered in Paris ; and at the same time, 
so long as the discount on London bills continues in Paris, 
there is a direct discouragement to further exportations 
from France to England, because the bills drawn in virtue 



COMMEECIAL CREDITS. 309 

of such cargoes- can only be sold below par, and this too 
tends to 7-estore the par in the commercial sense of the 
term. 

Here is another instance of a magnificently comprehen- 
sive law, by which Nature vindicates her right to reign in 
the domain of Exchange. It is through this natural and 
beneficent law of automatic compensations, stimulating 
exportations on the one side and slackening them on the 
other, that most of the casual disturbances of the commer- 
cial par as between two countries are easily and perfectly 
rectified. 

While this great law is in full possession of our minds, 
let us note in passing how artificial restrictions by one 
country on the importation of goods from another, com- 
monly called " Protectionism," affects this commercial par 
as between those two countries. Besides stopping abso- 
lutely a mass of otherwise profitable exportations and im- 
portations for both countries, it makes less profitable to 
the country imposing the restrictions whatever foreign 
trade does take place between them in spite of the restric- 
tions. Suppose England, as is the fact, opens her ports 
freely to the commodities of France, while France puts 
restrictions in the shape of heavy taxes upon importations 
from England ; more French goods are likely under these 
circumstances to seek English ports than English goods to 
seek French ports, because they are more welcome ; con- 
sequently, more bills of exchange drawn on London will 
naturally be offered in Paris than bills on Paris in Lon- 
don, and will so far forth be sold at a discount, while the 
London bills drawn on Paris will be sold at a premium ; 
in other words, the comparatively few goods that do get 
out of a " protected " country, realize less to their owners 
than the natural value, because the bills drawn on them 
are extremely apt to be sold below par ! With this course 



310 PRINCIPLES OF POLITICAL ECONOMY. 

of things all known facts agree. Since the United States 
became conspicuously a "protected" country a quarter of 
a century ago, it has been at rare intervals and for short 
periods that bills drawn here on London have been at par. 
They have been usually much below par. The equivalent 
of £1 sterling in United States money is $4.8665; and 
when bills on London sell for less per pound sterling than 
$4.86, they are at a discount in New York or Boston ; and 
exporters here are direct losers to the extent of the dis- 
count. 

If, however, notwithstanding the beautiful action of 
this great law of commerce, the disturbance in the com- 
mercial par as between two countries continues obstinate, 
it indicates one of several things as true of the country, 
whose bills of exchange drawn on another persist in a 
considerable discount; (1) it has come to be a pretty 
steady debtor country as towards the other, by sending 
thither its national or State or corporation bonds, whose 
interest and ultimately principal also must sooner or later 
be remitted in exports extra to the exports needed to pay 
for the current imports of goods ; (2) it has either nat- 
urally or by persistence in a bad public policy little or no 
shipping of its own, so that freights both ways have to be 
paid to foreigners in the form of exported goods extra to 
those exported to pay for those imported in transient 
trade, which of course increases the number and face of 
the bills di-awn in the luckless country on the lucky 
country or countries ; (3) it has made the vast and fatal 
mistake of excluding by legal barriers of taxes put on for 
that purpose the goods of foreigners, whose only motive 
in coming is to take off corresponding goods of the de- 
luded country's own to the profit of both, and so these 
last-mentioned goods must seek a foreign market (if at 
all) at reduced rates, their natural market having been 



COMMERCIAL CREDITS. 311 

destroyed by national law ; and (4) it may have made the 
national money in which the bills drawn on it are liable 
to be paid an inferior money, either transiently by mere 
abundance or permanently by worsened quality, which is 
well illustrated in the instance of Amsterdam as cited in 
a preceding chapter, and which can only be remedied by 
raising the standard of the money to the level of the 
best. 

Very little, if anything, can be inferred as to the pros- 
perity of a country or even as to the real condition of its 
" exchanges " in this technical sense of the term, by the 
transient movements of gold to and from the commercial 
countries, in their present complex relations as gold- 
producing and non-gold-producing countries and as debt- 
settling and non-debt-settling centres. Gold moves back 
and forth in obedience to several other impulses than to 
settle the balances in an international trade of Commodi- 
ties. Gold-producing countries of course export gold just 
as they would any other native product. If for any rea- 
son gold becomes relatively more abundant in one coun- 
try than in other commercial countries around it, general 
prices will rise in that country in consequence ; which 
means, that gold is then and there the cheapest article 
that the people of that country can export to pay their 
commercial debts with. Also, the imports which a na- 
tion pays for in gold, or in bills of exchange bought 
above par, are often bought with a high profit. Creditor 
nations, nations that have managed to make themselves 
settling-places for the world's commercial debts, and na- 
tions that welcome imports without impediment from every 
quarter of the earth (and England may serve as a sample 
for all these three), will largely pay for imports in gold 
or in bills bearing a premium. 

It is a thousand pities, that technical terms which are 



312 PRINCIPLES OF POLITICAL ECONOMY. 

quite misleading unless one remembers their origin and 
exact significance, have come to be intrenched in com- 
mercial language too strongly to be dislodged at this late 
day, as the common terms to express the state of the 
" exchanges " as between two countries. These terms are 
'■'■ against " and '■''in favor ofr The old Mercantile system, 
which has left other unsavory progeny behind it besides 
this, in order to keep and heap gold and silver in a country, 
encouraged exports in every way and discouraged imports, 
in order that the " balance of trade,'''' as the phrase ran, 
that is, the difference in volume between exports and im- 
ports, might come back to the country in gold and silver ; 
and this foolish and now thoroughly exploded notion gave 
rise to the terms in question ; exchanges were then said 
to be " against " a country when the record seemed to 
show more imports than exports, as if that implied that 
the imports were too great for a " balance " in gold and 
silver; and were said to be " in favor of '' a country when 
its export-line was greater than the line of imports, as 
implying a favorable balance to be met by a specie-import 
in future. The false " System " is gone forever, but 
the " terms " still abide in commercial language, and con- 
fuse the minds more or less (more rather than less) of 
everybody who tries to make these terms a vehicle of 
thought. We have now described the causes and courses 
of international bills of exchange without resorting to 
these technicalities, which imply movements of gold and 
silver which do not actually take place under the condi- 
tions supposed ; for example, the exchanges were " in 
favor " of the United States in 1874-77, there being an 
apparent trade balance of -1164,000,000 in 1877 and a still 
larger in 1876 and a larger one in the two years pre- 
ceding, but the import of specie was small in all those 
years, averaging about |;25,000,000 a year, and the rest of 



COMMERCIAL CREDITS. 313 

the excess of exports went to pay interest due to for- 
eigners, freights on the cargoes both ways, and so on. It 
is difficult to use without abusing the terms "against" 
and " in favor of " in this connection, and the reader is 
cautioned not to employ them : although " discount " and 
" premium " on international bills of exchange are matters 
extremely important to observe and to know the grounds 
of. Were there no counterworking principle, bills of 
exchange drawn on capitalist and creditor countries, like 
Great Britain, whose imports are apt to be strongly in ex- 
cess of the exports, and whose public policy is wise enough 
to put no obstacles in the way of the free receipt of im- 
ports, would be at a discount in countries sending exports 
thither. 

This counterworking principle, already illustrated as to 
inland exchange in the case of New York, is best seen 
internationally in connection with London, which is the 
settling-place of the world's commerce. When the Romans 
dredged the Thames and made " the pool " just below 
London Bridge, they took the first steps towards making 
that town a commercial centre ; since a market for prod- 
ucts is products in market, the busy exchange of commodi- 
ties there has quickened in every age the accumulation of 
capital and the increase of population ; previous to the 
Dock Laborers' Strike in 1889, about 100 vessels entered 
the port of London every day, which received about one- 
half of the total customs revenue of the United Kingdom, 
and sent out about one-fourth of its exports ; the business 
of out-of-the-way and semi-civilized countries has some- 
how (and it would not be hard to tell why) centered in 
London, as well as the business of originally British 
Colonies everywhere and of all other commercial coun- 
tries ; accordingly, debtors and creditors abound there, bills 
of exchange concentre there, and debts due from every- 



ni- 



I'ltlNCirLI'lS (»!'' I'(»l,l TKIAI, lOCONUAlV. 



wlirid itrc |);iy;il)lc l/irrc; ;iii<l I lii'icloir, Itccaiist! hills on 
LoihIoii :ti'<^ <'(i(i(| ;ill over llic wdihl, llic |)('iii:ui)l lor lliciii 
(■(iiiiiltM'Woi'kM tli(! iiiiiiii'sil ('liciijiiic^M 1)1 IIk; hills (jriivvii on 

(5X polls ///./////'/• IIM COlllpMrtMl wil.ll llic lliltlll'lll (l(!lllll(!HH 1)1" 

IIki Itills (hawii IIhtc on ex ports llinicr. 

Aitollun- iJiiii^' must Ix; borne in mind in <-om|)iu-inj^^ iJn; 
m(U'('li:i.n<lis(^ lU'connls ol iiny i-(nnilr\\ naint'ly, iliaJ, wlum- 
iwn'V llic "■ cxcliiuif^'c " is ^inni(■i(•lll lo covci' the cost, iiml 
riHl< ol' llic I liinsmissioii of j^old, j^old il-stilf is likely lo j^o 
IVccly I'nmi llic connliy, in wliicli hills dniwn on exports 
lire III it premium, or to use for once the old liii/iirdoiis 
plinise, '•'• (///^^/;/,s/ " uliieli llie ex(dmil^'tis liiive liiined, and 
hills will he drawn on that ^'old, !is upon eommon nier 
eliandise, and sold ol loiirsit lor the sake ol the |ireimiiiii ; 
<n', if a de('id('dl\' hi"her rale of diseoiint pre\;ul in a, 
neif^lihoriiic' e(Minlr\', i;old will naturally c'o thillier trcnn 
llie lower ral(^ lands, heeaaise hMiders in tiu! latter will 
desirti lo realize the hiy'her rate of eiirr<'iit interest on 
money, and hills will he dniwii on this !,;dld as well, which 
will tend to lower llu; premium on hills therc^ ; nnh^ss, 
then, the premiiim iiinl the dilTereiiee in interest a.hroiid 
will jnstil'y the Mpiunilalion, the ^'old will not stir; ulthoii^h, 
if the diHerene(( in inter<'st aJiroad wer(^ very eonsiderahle 
and promised to eoiiliniie U\v some time, Ihe hills on llit^ 
)^'old nii^'ht .sell at a diseoiiiit and still leave a^ prolit lo IIk^ 
senders; hut Ihe home hankers can always stop a. drain ol 
;^dld ol this kind \\\ ra.isiii"; tlieii' own rates of dis<'(mnt. 

This casual mention of hankers leads on to Ihe weijdity 
point, thai lllt^ whole hllsin(^ss of torcijni cxchaiii^'c is 
lalliu!'; more and more into th(t hands of the hankers, 
heeanse hills drawn A// and ///'c// well known hankers 
naturally have a hetter er('(li(. than (U•dina,l^ eommereiiil 
hills, llie nitmes upon which M.r(^ less widely :ind hi\draj)ly 
known. Accordiii:;ly, perscms scndiiiL;" cai'j^'ocs ol' cotton, 



COMMEIICIAL CItlODITS. '{If) 

HJiy, ())■ of iiiiy otluir valiiithhis, IVoiii N(iw York to Liver- 
])()ol, iii'range with their tiankcrs in N(;w York to have tlic 
pi'OccedH of tho carjrooK put, to Uio hankera'' credit in Lon- 
don, and then these bankers draw bills on the Lorxlon 
biinkei's, wbic-li will brin^' a, hi^lKji- |)t'ie(; in New Yoi'k than 
a e(jnnnon eornniei-eial bill, b(!eaus(5 many remitters and 
most travellers prefci- bii,nk(;rs' bills, which., though they 
cost more, pay better and buy better abroad. Commercial 
bills are still bought and sohl in every commercial town, 
but bankers' bills are more and more taking their place ; 
and the quotations usually give iJic (;uri-ent ])rice of each. 
London is so prominent as the settling-place of tin; 
world's transactions by means of bills drawn on and by 
London ba,jd<<!rs, partly on account of the couuneicial pre- 
dominance of lOngland, p;i,rlly from (!Xc,(!ll(;nt banking cus- 
toms thei'(!, and nia,inly becaiis(! an iniMuuise mass of (ilniaj) 
loanable (iapital (ixists there, wlii(;h even foi'cigncrs may 
borrow at l^oiidon rat(!S, providcsd only that they Cii,n gcit 
ci'(;dit there, that is, hsave to draw on a iiOndon bankei', to 
whom of couj'se remittances must Ix; made as fast as Ik; 
accepts their bills. Besides, tin; IJank of England, as the 
principal l)ank in Great liritaiu, and as (dosely connected 
with the (jiovernment, acts as a bank of support to the 
public and private (h-edit of that countiy. It does a regu- 
lar business as a, b;i,nk of deposits and discounts, but it 
moans to k(5C|) its rate of discount somcwhnt abov(i the 
v.iU'. (hnnanchid by the oth(ir bank(!rs in iiondon, so as not 
to (;oin(! into competition with them nnicli in tlnsir ordi- 
nary business, iuid Ix; aJ)le to act as a bank of supj)ort to 
th(!m and all oJ,h(!rs in tim(!S of pressure;. All banks have 
about, so much c.i'Cidil, to s(!ll, and no more: mosl, ba,nks S(!il 
in ordinary l,imes aboid, a,ll the ci'cdit they have;, be(;ause 
their pi'ofits depend on that; but if the Baidc of ^hlgland 
did this, it would beconu; uscdess in periods of panic. In 



31 PRINCIPLES OF POLITICAL ECONOMY. 

])oint of fact, that Hank just begius to soil its reserve 
credit, when the credit of the bankei-s below is exhausted. 
When they are at the end of their rope, there is gonerally an 
abundance of slack rope still in the great Institution above. 

Now, as gold can be drawn out of the Bank of England 
by the cheques of depositors as well as by the i)resentation 
of its own notes for redemption, the Rate of Discount be- 
comes a matter of prime importance in the management of 
the Baidv. The whole line of deposits is a line of liabilities to 
pay out gold, if the depositors demand it ; and, as deposits 
come largely through discounts, whenever there is a strong 
tendency to draw out gold so as to weaken the reserves 
of the Bank, the directors have an effectual remedy by 
raising the rate of discount. The higher the price the 
Bank charges for its credit, the fewer, so far forth, will be 
its customers, and the smaller its line of deposits, and the 
less likely a continuous drain of gold from its vaults. 
The Bank of England is managed throughout by so simple 
a manner as the turning back and forth of this magic screw 
of Discount. 

Besides the use of the term " Par of Exchange " in the 
broad commercial sense in which we have now been exam- 
ining it, as indicating the substantial equality of inter- 
national debts as between tAvo countries by the current 
prices of bills of exchange, there is another and subordinate 
sense in whicli the phrase is employed, namely, as denoting 
the relative value of the coins of one nation in the coins of 
another. Thus, our present gold dollar cmitains 23.22 
grains of pure gold : the English pound sterling contains 
113.001 grains ; consequently, there are •^4.8065 to the 
English pound : and this is the " par of exchange "' (in the 
secondary sense) between the ITnited States and Great 
Britain. Between the United States anil France the " par " 
is $1 to 6.18 francs, since the franc is 19.29 of our cents. 



COMMERCIAL CREDITS. 317 

An English shilling equals 24.33 of our cents, the new 
German "mark" is 23.82 cents, and the new Scandanavian 
" crown " equals 26.78 cents. 

g. Bank Cheques. In substance indeed and even in 
form. Cheques are Bills of Exchange, but the two have 
such differing legal incidents, and run so different a course 
towards extinguishment, that for our purposes in this trea- 
tise they should be put under a separate discussion. Bills 
of exchange are expressly drawn " at sight " or for a day 
certain, when they become payable by the drawee : cheques 
say nothing about " sight " or any future date, though 
they are really drawn at sight, and are payable to bearer 
on demand: they must, therefore, be presented for pay- 
ment within the shortest reasonable time (all things consid- 
ered), in order that the holder may legally claim against 
the drawer should the banker fail meantime : a cheque is 
held as the payment of a debt until it be dishonored on 
presentation: the banker bears the risk of the forgery of 
the drawer's name, unless his mistake be made easier by 
the drawer's carelessness in drawing : a cheque is not 
payable after the drawer's death. The parties to cheques 
are the Drawer, who is a depositor with some banker ; that 
banker thus becomes the Drawee ; and the person named in 
the cheque is the Payee, who can indorse his own right over 
to another person by name or in blank to bearer. When a 
cheque is drawn in this way by one hanker upon another, 
it is usually called in this country a Draft. 

Formerly in England, and in other countries as well, 
each considerable dealer kept his own strong box, and 
when he had occasion to make payments, told down the 
solid cash upon his own counter. Afterwards, the gold- 
smiths of London solicited the honor of keeping in their 
vaults the spare cash of the merchants, and these in their 
payments among each other came to employ orders or 



ni8 IMUNCIPLES OK POl.ITKWL ECONOMY. 

fliC(][UOS (liuwn on tlic j^oldsniillis, ;iiul at llu; shops of tlu; 
latter the i)iiiu'i[)al payments in coin were effeeted. IMie 
later introduetion of l>anks bronchi alon^;' with it the ens- 
(oni, now eonlinnally wiiU'ninn" in conunereial eountrii's 
anioni^- all chisses of the [)i'ople, of keepini^ one's funds 
with some hanker, and niakinn' payments by written (U'ders 
oi' eiiecpu's n[)on him. When the peison niakin'j;" the piiy- 
nient and tlie pei'son receiving" it keep their money with 
the same baida'r, tlu're is no need of any money at all 
jtassinn' in the premises, the snm bein«;' merely transferred 
in the banker's books from the I'redit of the payer to the 
credit of the n'eei\'er. The banker is ipiite willing' nsnally 
to do this bnsiness for nothing-, and even sometinu>s to 
allow the dejxisitors a low rate of interest on all balances 
remaining' in his hands, in consideration of the [)rivilege 
involved of loanino" sneh ])roportion of the ag-gregate of 
these snms as he deems safe to other parties at a higluu" 
rate of interest. 

In the larger cities, by an arrangement called tlie 
*•' (^learing-honse," snbstantially the same benefits are 
secured as if all the di'positors of the city ke{)t their cash 
at the same bank ; inasimieh as all the elu'(|ues drawn on 
eacdi of the different banks, and passing in the ctmrse of 
the bnsiness day into other banks, are assorted before even- 
ing at all the banks, and a,djnsted the next morning 
through the (dcaring-honse, and the credits and (U'bils of 
each bank are si't off as far as ])ossibh> against each other, 
leaving (tnly small balances to be settled in money. 

'I'he London BankiM's' Clearing-house was estahlished 
in 1775; in ISdl, the Ihink of Kngland was admitted to 
it: and since tluMi, the Clearing-house itself, and all llu' 
bankt'rs and tirms using it, keep ai-etnuds with the liank 
of iMigland, and the balances, formei'ly settled by money, 
are now adjusted by simple transfers of account on the 



COMMERCrAL CREDITS. 319 

books of that great Bank. 'J'liis carries out the grand prin- 
ciple of the Cleai'ing further than it has yet been carried 
in this Country, although the United States Sub-Treasury 
not very long ago joined the New York Clearing-house, 
while the practical details of the Clearing are simpler and 
better in New York than in London. The average clear- 
ings in the London house (and there are besides many 
other clearing-houses in the United Kingdom) were ,£5,218- 
000,000 a year for 1875-80, and the amounts cleared fre- 
quently rose to X 20,000,000 a day ; which, if paid in gold 
coin, would weigh about 157 tons and require about 80 
horses to cairy it ; and if paid in silver coin would weigh 
more than 2500 tons and require 1275 horses. This is 
stated on the excellent authority of the late Professor 
Jevons. 

The total business of the 23 clearing-liouses of the United 
States in 1880 was over 150,000,000,000 ; the New York 
Clearing-house did 65^ of that business for that year; and 
the average daily clearings there for the fiscal year 1879 
were 176,167,983. 

We will now describe mainly from personal observation 
the New York Clearing-house, which was established in 
1853, premising that the principle is the same, though the 
details may be different, in all other clearing-houses wher- 
ever located. Business men in New York, as elsewhere, 
usually pass in to their bankers as a deposit all the cheques 
and current credits received in the course of a business 
day. It is the custom for everybody to draw his own 
(dieque on his banker to make payments with, and to pass 
in to his banker the cheques he receives from others. Say 
there are sixty clearing-banks in New York City. Each of 
these banks sorts out after business hours every day all 
the cheques it has received that day drawn on each of the 
other banks into separate parcels ready for the clearing the 



320 PKINCIPLES OF POLITICAL ECONOMY. 

next moriiiuo-. VaicU bank has, thou, lifty-iiiiic parcels to 
deliver^ which rcjtresciit lh(^ [)r()j)('rty of tliai hank, and are 
a claim upon tlic othci- hanks; and also Id rcci'liw rifty-nine 
])a,rcels, wldcdi ivprcscnt the property of the other haidcs, 
and ai'(! a chiini npon i/scl/'. 

litsi'ore ten o'ehx-k in the; morning sixty messenp^ers, each 
havino- lifty-niiu! j)a,reels to deliviu-, appear at tlu; uhiarinfif- 
lionse, eacli repoi'tint*' to the niana.o'cr at oned for record (he 
anionnt of "-exchanoc " he has l)ronght, which is (Mitered 
of course as rro/i't to liis l)ank ; and then all take their posi- 
tions in order in front of the sixty desks, which occupy 
the tlooi- of the house, behind which sit sixty clerks, each 
representing one of the banks. Fau-\\ messenger stands 
opposite the desk of his own bank, with his fifty-nine par- 
cels already arranged in the exact order of the; baidv -desks 
before him. Of course no messenger lias anything to 
deliver to l\\v ( Icrk of his own bank, l^vach clerk inside 
his (h'sk has a shei't of [)aper containing the names of all 
the otlKH' baidvs arrangiid in the same order as the desks, 
with the ainonids carried out upon it which his messenger 
has just brought to each. All these a,r(^ entered in his 
credit eolunni. Each messengi^r can'ii\s also a slip of paper 
ready to be delivered with each parccd to each clerk, on 
which is entered the amount of the checines \ii\ now brings 
to each bank. Of course the amount delivered to each bank 
is debit to that bank, just as the amount brought hj/ each 
is credit to that bank. 

A signal from the manager, who stands on a raised plat- 
form at one end of the room with his two or more clerks 
before him, and each messenger steps forward to the next 
desk in front of him, delivers his parcel and also the slip 
that goes with it, which lattcn- the clerk signs with his 
initials and hands back to the messenger as his voucher 
for the delivery ; and then each messenger advances to the 



COMMERCIAL CREDITS. 321 

next desk, — the whole cue moving in order, — at which 
precisely the same things take place as before, and so on, 
until the circuit of the room is made, and each comes 
opposite again the desk of his own bank, having passed to 
each its " exchange " and taken a receipt for each delivery. 
This process takes about ten minutes ; when each clerk, 
who had on his sheet to start with the ci-edit due to his 
bank, has now the data (fifty-nine items) by which to cal- 
culate the debit of his bank. The difference between the 
aggregate of cheques received and hroufjht by his bank is 
the balance due to or from the clearing-house as to that 
bank. 

All the clerks report to the manager the amounts received 
by each, and as his proof-sheets hold already the amounts 
brought^ if the two columns add up alike, no mistake has 
been made, and the general clearing is over. Thirty-five 
minutes arc allowed the clerks to enter, report, and prove 
their work. Fines are imposed for errors discovered after 
that time. The Clearing-house gives tickets of debit or 
credit to all the banks, and the debit ones must pay in 
lawful money before half-past one, and the credit ones will 
get their due from the manager immediately after. The 
largest sum ever cleared in New York in one day was 
.1206,034,920.51 on Nov. 17, 1868, and the smallest 18,357,- 
394.82 on Oct. 30 of the panic year, 1857. 

h. Crossed Cheques. About twenty years ago there 
was instituted in London what is called the Cheque-Bank, 
which is designed to bring the benefits of the credit-system 
in the form of cheques more easily to all classes of the 
people. The cheques issued by this institution are so differ- 
ent in character and in course from common bank-cheques, 
and are in some respects so new in principle, that we must 
give to them a separate heading and a full explanation. 

The Cheque-Bank is a stock company in London under 



322 PRINCIPLES OF POLITICAL ECONOMY. 

that style, which has entered into relations with nearly all 
the banks and bankers of the United Kingdom, and with 
many Colonial and foreign banks also, by which Cheque- 
Books are furnished for sale by the Cheque-Bank through 
these associated banks, which also agree to cash the 
cheques, every cheque in which books indicates by printed 
and indelible perforated notices upon the forms what the 
utmost sum is against which that cheque can be drawn j 
the aggregate of these perforated sums is the price for 
which each book is sold less 1^ penny for each cheque in 
it, of which the penny is for the Government stamp re- 
quired and the one-fifth for the profits of the Cheque-Bank ; 
and all these cheques in books of different sizes and 
amounts are drawn in form on the Cheque-Bank, and 
Crossed, that is, onli/ made payable through a hanker. It is 
one security against fraud that each cheque bears on its 
face the utmost sum for which it can be used, and another 
is that it can only be taken up by a banker and thus set- 
tled ultimately through the clearing-house. The Crossed 
Cheques Act of Parliament in 1876 makes any obliteration 
of the crossing or essential alteration of a cheque felony 
at law. 

Cheque-crossing is of two kinds, special and general; 
when any particular banker's name is written between two 
transverse lines, in which form alone crossed cheques differ 
from ordinary ones, that makes that cheque payable by 
him only ; when the words " and Company " or " and Coy 
are written between these lines, that makts the cheque 
payable only through some banker, that is, the cheque is 
crossed generally ; and when two parallel transverse lines 
simply are drawn across the face of a cheque, with or 
without the words "not negotiable," that cheque is legally 
deemed to be crossed and crossed generally. When a 
cheque is uncrossed, the lawful holder may cross it either 



COMMERCIAL CREDITS. 323 

generally or specially ; when it is crossed generally, he 
may at his option cross it specially ; and whether crossed 
generally or specially he may add the words " not negotia- 
ble." All this facilitates greatly the cGllection of cheques 
by set-off through the clearing ; and has a direct bearing 
on the fortunes of the Cheque-Bank. 

The Cheque-Bank publicly guarantees the payment of 
all the cheques in all its cheque-books to the maximum 
amount for which each cheque may be drawn ; and it may 
well do this, for no cheque-book is sold except for money, 
and the money is ready in the hands of some banker to 
pay every cheque when presented ; any banker or other 
person will give cash for them, or take them in payment 
for goods or other services, or if they are drawn for a sum 
larger than the debt due will give back the charge to the 
bearer ; and if the cheques be actually drawn for less than 
the maximum perforated on them, the Bank itself will 
give additional cheques for the balance. The ultimate 
payment, then, of these cheques is as sure as anything in 
the future can be ; the buyer of a cheque-book knows, that 
the money is already in deposit to pay them, and that the 
government-stamps on them have already been paid for, 
while the receiver of an ordinary cheque cannot know 
beforehand that the drawer has money in deposit against 
it. Moreover, the holder of an ordinary cheque must use 
due diligence in presenting it for payment as soon as 
possible, or delay it at his own risk, while the holder of 
these has no motive whatever for haste, — time does not 
deteriorate them. All money received for cheque-books 
is left in the hands of the bankers who sell them, or trans- 
ferred to other bankers in order to meet the cheques pre- 
sented elsewhere, and accordingly an interest is paid by 
the bankers to the Cheque-Bank, on the balance of deposits 
thus held, and this interest, together with the one-fifth of a 



324 PRINCIPLES OF POLITICAL ECONOMY. 

penny for each cheque, is the only source of profit to tlie 
Cheque-Bank. Of course, the longer these cheques 
remain out before presentation, the more profitable to the 
Cheque-Bank; and their average length of life has been 
heretofore not far from ten days. 

Since these cheques are crossed generally (not specially) 
with the words " and Co.," that is to say, since they can 
ultimately be taken up only by some banker, they have a 
more geyieralized character than common bank-cheques, 
they are safer to carry and keep than so much money 
would be, there is no difhculty in shopping or paying 
wages by means of them, they are very much the same in 
their nature as bank bills are, and might easily in certain 
circumstances become money just as bank bills in some 
circumstances are money. Each of the associated banks 
keeps an account of course with the Cheque-Bank, but is 
not obliged to keep a separate account with the purchasers 
of cheque-books, which is a great relief to the banks. In 
this way the Cheque-Bank extends the use of cheques in 
the lieu of money to a great multitude of small transac- 
tions, and relieves the other banks from what would 
otherwise be a great deal of troublesome accounting and 
collection. The ingenuity and the utility of this compar- 
atively new form of Credit cannot be questioned for one 
moment; the promoters of the Bank intended that their 
cheques should be received by the people as a substitute 
for cash and for Post Office orders, and such has been the 
effect, many railway and other companies having long ago 
agreed to receive them as cash, and the people generally 
regard them as cheaper and more convenient than postal 
orders and even for many purposes than cash. 

i. Cash Ci'cidits. As the Cheque-Bank in the sense as 
just explained has been thus far in the history of Credit 
peculiar to England, so we have now to look to Scotland 



COMMEECIAL CREDITS. 325 

only for an exemplification of a form of Credit hitherto 
confined to that country. It is a national characteristic of 
the Scotch to be " canny," that is, they can^ a word from 
the old Teutonic Izonnen^ to he able; and, as a consequence, 
Scotch Banking has long been famous the world over ; and 
the one peculiarity of it, with which we are now concerned, 
goes back certainly to 1729, as we happen to know from a 
minute of the Directors of the Bank of Scotland under 
that date. That bank was chartered by the old Scotch 
Parliament in 1695, one year after the chartering by the 
English Parliament of the Bank of England, and under 
substantially the same title as that, namely, " The Governor 
and Company of the Bank of Scotland." It began to 
establish branches in different towns of the realm in 1696, 
and began to issue bank notes for £1 (a privilege denied 
to the Bank of England) in 1704; and it began also at a 
very early period to exhibit the two main peculiarities of 
Scotch banking, namely, (1) to receive deposits on interest 
and (2) to grant credit on cash accounts^ or, as they have 
come to be called less properly. Cash Credits. 

This second peculiarity, which has proved extremely 
beneficial to Scotland, is for substance this, to create a 
drawing account in favor of a deserving customer, who has 
made as yet no deposits in the bank, but who draws out 
money and pays it in from time to time just like an ordi- 
nary depositor, and instead of receiving interest on the daily 
balance to his credit (old Scotch fashion), he pays interest 
on the daily balance to his dehit. These accounts are called 
Cash Credits. They are not intended to be dead loans, but 
quick accounts ; and they are not granted except to persons 
in business, or to those who are frequently drawing out 
and paying in money. The individual who has obtained 
such a credit is enabled to draw the whole sum, or any 
part of it, when he pleases, replacing it, or portions of it. 



326 PKINCIPLES OF POLITICAL ECONOJMY. 

when he pleases, according as he finds it convenient, inter- 
est being charged only upon such part as he draws out. 

David Hume in his Essay of the Balance of Trade, 
published in 1752, makes this nice point in favor of Cash 
Credits: "If a man borrows X5000 from a private hand, 
besides that it is not always to be found when required, he 
pays interest for it whether he be using it or not. On the 
other hand, his Cash Credit costs him nothing, except 
during the moment it is of service to him ; and this circum- 
stance is of equal advantage as if he had borrowed money 
at a much lower rate of interest." The Cash Credit is 
always for a limited sum, seldom under XlOO, given upon 
the customer's own security, and that in addition of two 
or three individuals approved by the bank, who become 
sureties- for its payment. Of course, only those banks can 
furnish such credits which possess a surplus of credit more 
than they can sell in the ordinary way, and these credits 
are safe and useful only in small communities, in which 
men are well known to each other. Some friends of 
the parties thus accommodated always guarantee the bank 
against loss; but the losses have proved to be insignificant, 
the gains to be marvellous; and this form of credit issued 
on the basis of no previous transaction in the way of 
deposits illustrates better than any other the radical prin- 
ciple, that Credit is Capital. 

The Report of a Connnittee of the House of Lords made 
in 1826 on Scotch and Irish banking describes very clearly 
and fully the system of Cash Credits : " There is also one 
part of their system, which is stated by all the witnesses to 
have had the best effects upon the people of Scotland, and 
particularly upon the middling and poorer classes of soci- 
ety, in producing and encouraging habits of frugality and 
industry. The practice referred to is that of Cash Credits. 
Any person who applies to a bank for a Cash Credit is called 



COMMERCIAL CREDITS. 327 

upon to produce two or more competent sureties, who are 
jointly bound; and after a full inquiry into the character 
of the applicant, the nature of his business, and the suffi- 
ciency of his securities, he is allowed to open a credit, and 
to draw upon the bank for the whole of its amount, or for 
such part of it as his daily transactions may require. To 
the credit of the account he pays in such sums as he may 
not have occasion to use, and interest is charged or cred- 
ited upon the daily balance, as the case may be. From 
the facility which these Cash Credits give to all the small 
transactions of the country, and from the opportunities 
which they afford to persons who begin business with little 
or no capital but their character to employ profitably the 
minutest products of their industry, it cannot be doubted 
that the most important advantages are derived to the 
whole community. The advantage to the banks that give 
these Cash Credits arises from the call which they contin- 
ually produce for the issue of their paper, and from the 
opportunity which they afford for the profitable employ- 
ment of part of their deposits. The banks are indeed so 
sensible that, in order to make this part of their business 
advantageous and secure, it is necessary that their Cash 
Credits should be operated upon, that they refuse to con- 
tinue them unless this implied condition be fulfilled. The 
total amount of their Cash Credits is stated by one witness 
to be £5,000,000, of which the average amount advanced 
by the banks may be one-third." 

There are only ten Banks doing business in Scotland, 
and the Bank of Scotland, the oldest of these, had 86 
branches in 1875, and the average number of branches of 
the other nine is very nearly the same with that. 

j. Circular Credits. These are a device of bankers to 
enable travellers and merchants of one country to obtain 
credit and cash in foreign countries in sums to suit their 



328 PRINCIPLES OF POLITICAL ECONOMY. 

convenience, not to exceed in the aggregate the limit 
mentioned in the credits drawn. These credits assume 
different forms and are called by different names, but they 
are all at bottom foreign Bills of Exchange. They are 
Orders to pay. They are drawn by Bankers at home upon 
Bankers abroad. They are bought by travellers and 
others, because they are safer to carry than so much money 
would be, and much more convenient. In nearly all of 
those forms the credits are available for no one else than the 
payee, whose name is upon the form as well as the names 
of the bankers who are the drawees, and so the credits are 
not liable to be stolen, although they may be temporarily 
(not ultimately) lost. Purchasers of such credits can 
obtain money on them in all of the principal cities of the 
world in just such sums as they need. They have ulti- 
mately to pay for no more credit than they actually use, 
because the drawer will pay back to the payee, in case he 
has bought and paid for the entire credit drawn, the cash 
difference ; wliile on the other hand, arrangements can 
always be made beforehand, by which money need not be 
deposited with the banker at home any faster than it is 
actually called for abroad ; and while also a good customer 
of the bank drawing the credit, one who keeps ordinarily a 
good line of deposits, may jjay for whatever credit he has 
used when he returns from his trip. 

There is one kind of these foreign credits that deserves 
separate mention, since it has come of late years into quite 
general use, namely, " Circular Notes," as they are called. 
These are sight bills of exchange, each drawn for a rela- 
tively small amount, say XIO, and multiplied in number to 
the requirements of the buyer, and drawn by one domestic 
banking-house, say Kountze Brothers of New York, on one 
foreign banking-house, say Union Bank of London, the 
names of drawer and drawee only being upon the " notes," 



COMMERCIAL CREDITS. 329 

the payee or buyer being expected to indorse each note in 
the presence of the Correspondent making the payment. 
The notes, therefore, are not negotiable except by the 
signature of the payee himself from time to time as he 
needs the proceeds. This makes them safer than so much 
money to carry : if stolen, they could do the thief no 
possible good. At the same time the drawer of the notes 
furnishes the payee a circular letter addressed to his bank- 
ing correspondents all over the world, just as in an ordinary 
Letter of Credit, containing the name and also the personal 
signature of the payee, but unlike the ordinary Letter 
making no reference to the amounts of credit furnished, 
and there are no indorsements of any hind by the corre- 
spondents on this circular letter, which the payee is 
cautioned in print on the back to keep separate from the 
Circular Notes covered by it. One of these letters runs as 
follows, the name of the payee being entered in manuscript 
and also in autograph : — 

" To ouE Correspondents, 
Gentlemen, 

This letter will be presented to tou by 
Grace Perry, who is recommended to your kind atten- 
tion, AND is supplied WITH OUR CIRCULAR ISTOTES, THE 

value of which please furnish at the current rate for 
sight bills on london, without any expense to us. 
After you have examined this letter, please return it 
to the bearer, in whose hands it will remain until the 
expiration of the circular istotes." 

These Circular Notes approximate in certain respects in 
kind towards the cheques of the Cheque-Bank of London : 
both are bought at the outset and paid for in full on the 
spot; and both are drawn upon one Bank, which is the ulti- 
mate Drawee and Payer. In two essential respects, how- 



330 PlilNCIPLES OF rOLlTIOAL ECONOMY. 

ever, the notes differ from the cheques : the cheques are 
payable to Bearer without any indorsement by anybody, 
and so have a much more i/eneralized purchasing-power 
than the notes, which have to be indorsed by the payee 
(not named indeed in the notes but in the letter accompa- 
nying them), as they are negotiated in a way preliminary to 
their ultimate payment by the single bank on which they 
are drawn ; and also the notes, like all other foreign bills 
of exchange, are subject in their value to the fluctuations 
of International Exchange, while the cheques in their 
value are independent of commercial exchanges ''in favor" 
or " against " any country, and entitle the bearer to so 
many pounds sterling in value according to English coin- 
age without any possible discount or premium. These 
London Cheques, accordingly, approach much nearer to 
the character of Money than any other form of Credit yet 
devised, except Bank bills undoubtedly convertible ; and 
already take their place as one of the media in the interna- 
tional trade, and are sold in New York by authorized 
agents of the Cheque-Bank, as they have long been by 
such agents in all English and Colonial and in many for- 
eign cities. 

These Ten are the principle instruments in Credit- 
Exchanges throughout the world; and Ave pass now, as 
proposed, to the next section of our subject, namely, the 
Advantages of Credit. 

3. As introducinof these advantatjes and also as illustra- 
ting them, we call attention first to the antiquity of many 
of the forms of Credit, a point upon which much fresh 
light has been cast by recent discoveries in, and ability to 
decipher the cuneiform writing of, the ancient Assyria and 
Babylonia. It is to the credit of Credit, that the earliest 
of civilized men seem to have perceived its nature, to have 
seized upon its powers, and to have realized for themselves 



COMMERCIAL CKEDITS. 331 

some of its advantages. Credit is natural and legitimate. 
The moderns have invented new forms of it, and have 
tested its eapacities to the utmost, but the ancients know- 
it well in several of its instruments, and vindicate their 
own insight into the recesses of Exchanges by tablets and 
documents now known and read of all men. 

In an earthernware jar found some years ago in the 
neighborhood of Hillah, a few miles from Babylon, were 
discovered many clay tablets inscribed with records relat- 
ing to banking, and, what is more, to banking as carried 
on for generations by a single family or firm, which the 
cuneiform archaeologists have translated as "Egibi & Co." 
These tablets are now deposited in the British Museum. 
Tliose who can read them sa}^, that the founder of this 
banking-house, Egibi, probably lived in the reign of Sen- 
nacherib, about 700 B.C. This family has been traced in 
banking transactions during a century and a half, and 
through five generations down to the reign of Darius. 
They were the Rothschilds in the region of the Euphrates : 
they acted in a sort as the national bank of Babylon. 

The Tigris is always associated with the Euphrates and 
forever will be. Nineveh on the former river, like Baby- 
lon on the latter, has yielded from its tablet-records infor- 
mation as to the use of credit in the more northern capital 
of Assyria. " Within the palace of Asshur-bani-pal, the 
Sardanapalus of the Greeks, who reigned at Nineveh from 
668 B.C., Layard discovered what is known as the Royal 
Library. There were two chambers, the floors of which 
were lieaped with books, like the Chaldean tablets already 
described. The number of books in the collection has 
been estimated at ten thousand. The writing upon some 
of the tablets is so minute that it cannot be read without 
the aid of a magnifying-glass. We learn from the inscrip- 
tions that a librarian had charge of the collection. Cata- 



332 rUINOII'LKH OK I'OlJTICAli EfU3N0MY. 

loguoH ol till! hooks lia,V(i Im-cii roiiiid, iniidt! oiiL oil I'lay 
tablets. Tlic libi'iuy was open to llio public, for an inscrip- 
tion of Aashur-bani-pal najH, "i wrote upon the tablet h ; I 
place them in mij palace for the instruction of mi/ peop/e.'' 
Tho Assyrian ta,l)lots embrace a great variety of subj(!cts ; 
the hii'ger ])ai(, liowever, are hixieons and treatises on 
grammar, and various other woi'ks intended as text-books 
for s(diolai'S. Pcu'liaps I he most (airious of the tablets yet 
found :u(! not(!S issued by (he; (iovtn'iinient, ii,nd made re- 
deemabh? in t^ohl ami silver on pr(isentation at the King's 
ti'casury. Tabhits of Ihis (diaraeter have; l)een found ])ear- 
ing date as eaily as (lljr) it.c. It would seem fioin this 
that the Assyi'ians luid very correct notions of the promis(!- 
character of paper Cti>'l>l''<') money" (Myers). 

In the Metropolitan Muscmm of Art in New York arci 
Bal)ylonian tablets bearing distinct records of (tredit trans- 
actions that took pla,e(i in the reign of Nebuchadnezzar. 
The earliest tablet is of the yi'ar GOl u.c. On it are mem- 
oranda of loans of silvei- iw.uU) \)y Kurdurru as follows: 
"1 inina of silver to Suta, 1 mina to Balludh, f mina to 
Buluepus, f) shek(ds to Nabu-basa-iiapsate, ami 5 shekels to 
Nergaldann , - lotal, I) niinas, f) shekels of silver." There 
ans morii than AO similar tabh^ts in this collection ; the 
latest dated, " Babylon, 18th day of 14th year of Darius," 
(Jiat is, H.C. r)Or). M. Lenormant, who can read Miein, 
(bvidc^s lhes(5 crcMlit doeumeiit-s into live ])rincipal ty[)es. 
1. Simple! obligations; 2. Obligations with a |)enal (daus(! 
incase of non-fidlilnienl , ;'>. Obligations wilh the guar- 
antcuMo a third jiaity; 1. Obligations payabh; to a third 
person ; and T). Diafts drawn upon om^ jjlace, payable in 
anothei-. These last a.r(! letlcM's (d" Credit. They contain 
tho names of seNcral witnesses. Tliey are evidently nogo- 
tiabhs but fiom the nature of things could not pass by 
indorsement, because when the clay was once baked 



COMMERCIAL CR KBITS. 833 

nothing new could be added, and under these circum- 
stances the name of the payee was often omitted. It seems 
to follow from this peculiarity, that the drawee must have 
been regularly advised by the drawer. One of the credits 
in this most interesting collection liad 79 days to run. 

The main elements of their civilization came to the 
Greeks, and especially to the Greek cities in Asia Minoi- 
demonstrably from the Eastward ; the Greek West proved 
itself quick to catch up the thoughts and the modes of the 
East; accordingly, Isocrates in his plea against tlie banker, 
Pasion, describes a formal bill of Exchange bought by 
Stratocles in Athens, payable in Pontus, and guaranteed 
principal and interest by Pasion ; the practical Romans 
were pupils of the Greeks in all such matters, and so 
it came about in course of time, that Cicero wrote as fol- 
lows in a letter to Atticus, — " Let me know, if the money 
my son needs at Athens can be seut liim hy ivay of exoliange^ 
or if it be necessary for it to be taken to him, — per7nu- 
tarine possit an ipsi ferendum sit^\- and after that the 
Jews and the Lombards carried the Letter of Credit all 
over the world. 

It goes without saying, when the most civilized and 
advanced people of the world were the first to adopt and 
have been since the quickest to expand the use of Credit, 
that there must be pretty obvious and very solid advan- 
tages from such use and expansion ; and we must now note 
and weigh a few of these advantages. 

(1) There are young men in every advanced community 
in the world who have integrity and industry and skill, 
but little or no Capital ; and wlien such men ai'o enaj^led 
to borrow money, as by the Scotcli system of " cash ac- 
counts " or otherwise, to start themselves in business or to 
enlarge a business already in successful operation, the gen- 
eral interests of Production as well as their own personal 



884 rillNCII'MOH Ol'' I'OM'riCAL lOCONoMY. 

ilil(!roHiH, iir(5 ^•riiiilly siihsnvcil hy .siidi crcdil-; Ixii^aiisn 
ill ;ill |»r()l);i,l)ilil V iiiiicli ciiiiil;!,! (Jiiis piissits oiil of liiiiids 
wliicli iti(; IfXH iiilt) li;iii(ls wlii('h arc inorc able It) \iHv. il /tro- 
(hii-liiuli/. 'rii(>M(! who ar(! hcsl- aJtlc l<> iiialu; capital fell hy 
iii('i'(!a,S(! arc j^('iici ally (host! who arc most, desirous lo ohi.aiii 
it, iiiid ri'c(|iiciil.ly those who can olTc!!- the best .seciiiity fof 
its iH'placciiicnl. Nothing', thcrcd'ori!, is t,o Im! sa,id against, 
hut every I hill;;' in ra.vor t»r, hucIi a loaninj.;' ol capital as 
hIkiII hrin^' it under sahs conditions I'roni the hands ol" tho 
idle and tli(^ ii,L;'cd, from thosi; indispos<'d or incoinp(!t(!nt 
t,o use it proline! ivcly, into other hands at once; conqxitcnt 
and honest. Such credits as tluise arc a luinclit and only a 
bcsnolit to all tlu; parties coiKUirned, and to Socitity at hir^e. 
The u.etive ()])(! I'lit/orH rcstain sonicthin^^- ol prolit Alvr ic^jilae- 
inj^- th(! capital with cnncint interest upon it; the hMid(!rs 
receive more than if their capital remained idh;, or th(!y 
employed it tluimselvcs; and Society is hene(it(!(l by a moi'e 
complct.(i d(!Vt^lopnicnt, and rapid circulation, of S(U'vic308. 
Despito all th(( instances of hroUeii hdth, it is still an honor 
to human mitiire, that www do so cain by ^ood (^luuiictcr 
the conlidcnct! of their Icllows, that they are and oui^ht to 
be trusted with I'.apital on their simple word or note; and 
it. is the ^loiy of free political institutions, that undei- thcii- 
inllucnce more; than elsewhere, yoiinc; men do rise by the 
li<'l|» of so sli<^ht. a stcppinc^-stone as this, in crowds, to tho 
hi;,di places of opul(;nc(!. 

In tht^ importa.nt. point of vit^w, that, thus all of the 
iiviiihihle (iapital of a. connnimily is brought out into pro- 
ductivii iictivit)', too much can scarcely b(i said of Saviuj^-s- 
Uanks, which taki^ tla; surplus earnings ol' the poor, and 
not onl\ Keep them safely, hut. pay a. fair intcicst. (Ui each 
deposit, and loan tht! a.<;nreL;at(i at a higher ra.te on choice; 
HetMiriti(;s, thus stimulatino- friioality in a wide eircle ol' 
di!positt>rs, and at the same time aiding- i'roduction by oppor- 



COMMIOJUJIAJ. (JREDITS. 335 

tunc loans to the best class ol borrowers. In the year 
1881, there were $443,000,000 invested in savings-banks 
in the State of New Yoi-k, and 1230,000,000 in the; small 
State of Massachusetts. 

In this first category of the advantages of Credit, coun) 
also the ordinary bank discounts, made for short periods 
only, holding the debtor to the strictest rules of payment, 
only professing and oidy enabled to help customers over 
the transient hard places in their business, and not to fur- 
nish the funds on which the lousiness is mainly conducted. 
Loans drawn from the banks on intci'cist shoidd never be 
|)ut into the form of fixed capitid, and should only be a 
part of the quick or circulating capital, since only the 
passing necessities of a business having an inde])endent 
basis and movement of its own, can safely be met by bank 
discounts. The cash credits of Scotliuid arc <|uite different 
both in what they are and in what they imply from the 
short and sharp discounts of the banks of our own country. 

So far as the capital stock of banks is made up, as it 
usually is, of a hu-ge number of comparatively small sub- 
scriptions, there is the great advantage just spoken of, of 
calling a multitude of otherwise idle sums into activity in 
production ; and so far as no undue privileges, unjust to 
other corporations and individuals, are accorded to banks 
by law, thei-e is no })ran(;h of industiy more legitimate and 
beneficial than banking. It is no essential part of the 
functions of ^ bank, tliat it manufacture and issue paper 
money ; that feature is always rather a source of weakness 
thai! a ground of strength; the money the bank circulatc^s 
should always be the national money ; and if that too, un- 
fortunately, should be credit-money, the element of ci-edit 
in the money sliould ho sharply discriminated in the ])ul)lic 
mind from that other and quite diffci-ent element of credit 
by which the bank loans it to its customers. 



336 PRINCIPLES OF I'OLITICAL ECONOMY. 

(2) Tlioro is iuiotlier class of advantages in Credit, 
whicli (Id not d('|i(',iid so imicli mi tlu; ti'ansfer of Capital 
from less to more pi'odiietive hands, as on the faeilities 
which credit aft'oi'ds in eeonomi/Jng the general (j|Ha'ations 
of Exchange. Here the advantages aie derived from the 
convenicMice of scfllhu/ accoiinta arising out of exeiianges, 
rather than fiom the cJiaracU')' of \\w excdianges tJKMUselves. 
Look a momenl, foi' exani[)l(', at htriiign Hills of Exchange. 
They serve to settle up the accounts arising Irom the ('om- 
merce of two or six Continents, with but little transmission 
of money fi(»ni any, and with hut very little loss of time. 
Commercial hills drawn in New York on London have been 
usually payable at sixty days' sight; the New York mer- 
chant despatching a shi[) is able to realize at oni;e the value 
of her caigo, minus interest for the time his bill has to 
run ; sincii bankeis' bills have so largely taken the [)lace 
of "eonnnercial " bills, the time is nuich shortened thei'cby, 
and this is one leason why bankeis' bills bear a higher 
price in the maiket; the merchant or sender is indeed still 
liable in part to see that his bill is ultimately paid by the 
drawee ; but the (tonniu'ii-iiU integrity of the leading houses 
and leading banks in all couid,ries is with justice so lirndy 
believed in and acted on, that on the; whole but little 
anxiety springs fidin this sourci!. it is on(i of tlx^ noble 
things in iid-ernational commerce, that men trust each 
other across the oceans, and lay millions of value on the 
faith of a single firm. 

Ldand bills of exchange equally facilitate settlements 
within the country itself ; and chefpuis, whii-h ari^ of the 
same esseidial nature as inland bills, coidributc; to the same 
end even more! simply and surely, passing readily in pay- 
ments wherever the parties are known, and through credit 
and set-oil' doing tlu^ work of monc^y more c()nv(!nicutly 
and economically than, and within ceitain limits just as 



COMMERCIAL CREDITS. 337 

safely as, money itself could do it. The face of a clieque 
drawn to the amount of his deposit in favor of another 
depositor in the same bank is transferred in the banker's 
books from the credit of the drawer to that of the payee 
by the stroke of a pen, no money at all jjasses in the 
premises, while the ])anker is released from one debt by 
creating iuiother of equal amount, the diuwer is released 
from one del)t by another to be transferred to the payee, 
and the payee is paid by tlie drawer by the former's receipt 
of anotliei' debt more acceptable to ]iim. 

(3) Besides tlie two essential functions of all banks, 
namely, tlie recieiving' of deposits and the discounting of 
bills, most of them perform a variety of other legitimate 
operations in Credit, wliicli must be classed among the 
advantages of Credit. They buy and sell debts of all 
sorts. They make collection of debts for their customers. 
They sell their own drafts on distant places. Since 1863, 
our national banks have done an immense business in 
handling the debt of the United States : they were instru- 
mental in diil'iising the national bonds among all classes of 
the people: tliey collect for their customers tlie cou[)ons at 
maturity : they have been and still are the factors of the 
govermnent in exchanging, for those who desire it, one 
species of bond for anotlier ; and the entire debt of the 
United States has been several tiimjs changed, mainly 
tlirougli the agency of the l)anks, from bonds at liigh i-ates 
of interest and for sliort times of maturity to bonds at 
lower rates and for longer times. 

(4) The fourth, and probably the cliief, advantage of 
Ch'cdit is the fact, that a new purchasing-power is created 
by means of it, a new Valuable, something additional to 
all existing before in the world of Values. One can buy 
otlier things with Credit, as well as with material Com- 
modities and personal Services. Credit, tliercifore, becomes 



338 PRINCIPLES OF POLITICAL ECONOMY. 

a Salable under the two peculiar limitations already ex- 
plained, those of future Time and personal Confidence, just 
as Commodities become a Salable under the peculiar limi- 
tations belonging to them ; and, what is more to the present 
purpose, just as some Commodities (all of them salable) 
become Capital under the action of the abstinence of their 
owners, so some Credits (all of them salable) become Cap- 
ital under the action of the Abstinence of their owners. 
Some commodities and some credits are expended, that is, 
sold, for the immediate gratification of their owners, with- 
out ever a thought of a future increase to accrue ; but also, 
some commodities and credits are reserved by their owners 
for use in further production, that is, for future buying and 
selling ; and the motive in all such cases is the same that 
creates all Capital everywhere, namely, the increase to 
accrue as the result of such abstinence ; and, consequently, 
we lay down the postulate with all confidence, and enu- 
merate it as one of the main advantages of Credit, that 
some Credits are Capital, with all the powers in produc- 
tion of that potent agent already exemplified. 

It is only fair to apprise the reader right here, that 
almost all Economists deny that any new capital is created 
through Credit. These deny in toto that the relation of 
debtor and creditor involves anything more than the ex- 
change between the two parties of certain titles to tangible 
goods. Let the reader now hear, and then judge for him- 
self. Bonamy Price of Oxford University, a professed 
Economist and a teacher of acknowledged ability, writes 
as follows:^ " Otnifting the capital which a joint .stock com- 
pany puts into a hank, the hanker possesses 7io capital, except 
his premises and any coin that may he in them, however 
much commercial and monetary literature may ascrihe capi- 
tal to banks. Lines and names in ledgers, cheques at the 
* Practical Political Economy, 1877, p. 452. 



COMMERCIAL CREDITS. 339 

Olearing-liouse^ debts due to depositors, debts due upon bills 
by borrowers, are neither wealth nor capital. They are words 
and nothing more. Incorporeal property, under which these 
kinds of written words are summed up, is not wealth ; it is 
merely a collection of title-deeds, but from which the reality 
is absent. The corpus is not in those deeds, but the right to 
acquire that property, even before possession is obtained, is 
itself a property. If a title-deed or a mortgage is declared 
to be actual wealth by Political Economy, then the sooner it 
is consigned to the tvaste-basket, the better.''^ 

This passage shows how the word, "wealth," tangles 
men up inextricably, who, by discarding it utterly, might 
have become clear thinkers and useful expositors. It also 
shows, that Professor Price never analyzed Valuables into 
their three kinds, never thoroughly mastered in a prelimi- 
nary way the Idea that underlies Economics, never precisely 
understood what Money is, and certainly never found out 
the radical nature of Credit. Nevertheless, the passage just 
quoted really concedes the whole matter in the present dis- 
pute, — "the right to acquire that property, even before 
possession is obtained, is itself a property," — that is all that 
we claim, namely, that rights are property, and that new 
rights (which are property) are created by Credit, and that 
some of these new property-rights thus created may become 
and do become a new Capital. These new rights, however, 
this new and acknowledged " property," are not " titles " 
to any specific valuables whatever, as Price supposed ; "a 
title-deed or a mortgage " is a totally different thing from a 
Credit, since the one always describes and gives a qualified 
title to some specific and tangible thing, while a credit-right 
is always a claim against a person ; the Roman law drew 
this distinction perfectly, a credit-right was a jus in perso- 
nam, while a title-right was a jus in re ; the common Latin 
language as spoken and written marked the difference by 



340 PRINCIPLES OF POLITICAL ECONOISIY. 

separate words, a credit-right or true debt was a Mutuum, 
while a title-right or thing loaned was a Commodatum ; 
and the Law of our present national banks explicitly 
recognizes tliis universal and fundamental distinction, by 
requiring the banks to loan money on personal security 
onl)/, that is to say, no tangible things whatever, not even 
real estate, are allowed to be taken as original security for 
any loan. Banks deal only in true debts, — mutua, — 
and when they keep custody of concrete valuables — com- 
modata — for their customers, it is as trustees or bailees 
and not at all as debtors. 

Oiu' late Oxford friend was far too well informed in 
general to contend, that a cheque, for example, is " the 
right to acquire possession " of any specific property any- 
where ; the drawer has indeed deposited money with the 
banker on whom the cheque is drawn, but that money 
became the banker's money the moment it was deposited 
and no longer his own ; the cheque, accordingly, is a 
general claim on the banker, and not at all on any special 
fund in the banker's hands ; it follows, therefore, that the 
excess of the banker's average deposits over his average 
reserves to secure them, is a new creation of Credit, a 
new resource of Production, a new Purchasing-power now 
available to the banker not previously and practically 
available to anybody, a new Valuable which he proposes 
to use and does use for the sake of profits accruing, conse- 
quently a new Capital. 

Now let us listen to the objections to this view by a 
practical banker, J. H. Walker, of Worcester, Mass., in a 
little book of his on Banking published in 1882 : " A 
man always harrows something of intrinsic value. What he 
borrows is not a piece of paper, whatever may be on it, but a 
farm, a house, a factory, or a part of them ; a store, a mine, 
or goods. No man can borrow or lend anything else. The 



COMMERCIAL CREDITS. 341 

borrower gets from the lender what puts him in possession of 
the things he seeks, and it must be some one of these things. 
So of all money (^except coin^. It has no value in itself. It 
adds nothing to the capital of the ivorld. It purj^orts to be 
and is only a title to property, a convenient device for trans- 
ferring the ownership of property.^'' 

This author is led astray by the worse than useless 
adjective " intrinsic," having never yet learned that there is 
only one kind of value in the world of Economics, namely, 
purchasing-power ; he sees men as trees walking through 
the haze cast over paper-money by John Law in the last 
century, as if paper-money must be " based " on something 
tangible and specific ; he makes a narrow and false assump- 
tion that the only objects ever bought or borrowed are 
corporeal "things," denying that the debts in which alone 
he deals as a banker are realities as much as any " thing " 
can be ; and it all comes in his case, as in the case of 
hundreds of others, from a totally inadequate analysis of 
Valuables into their three separate and virtually independ- 
ent kinds, namely. Commodities and Services and Promises. 
Mr. Walker, although he writes a book on purpose to do 
this, can not explain at all under his view the Deposits and 
Discounts of his own bank, and would be as dumb as an 
oyster when confronted with the " Cash Credits " of Scot- 
land. 

(5) The fifth advantage of the use of Credit, and the 
last one to be mentioned in this connection, is, that it 
dispenses with the use and wear of large amounts of 
expensive Money. It is perfectly certain that Credit 
answers many of the purposes of Money. Suppose A has 
bought of B 1100 worth of goods, and B has bought of A 
il25 worth of goods. Three ways are open to close up 
these transactions. A may pay B and B may pay A in 
money. This would take $225. A may pay B in money, 



342 PRINCIPLES OF POLITICAL ECONOMY. 

and B may send that back with $25 more. This would 
take $125. Or A and B may mutually balance their 
credit-books, and B pay the difference in account. This 
would take but ^§'25. It is clear then, that, as one or other 
of these general methods prevails in practice, the quantity 
of expensive money required to do the business of a country 
is very diffeient. Just so in international trade. Foreign 
bills of exchange lessen enormously the quantity of me- 
tallic money that would otherwise have to be transported. 

It is not strange that some thinkers and writers, seeing 
these unquestionable benefits of Credit even within the 
peculiar sphere of Money itself, have come, like Herbert 
Spencer and many more, to think and teach that Credit 
might answer all the purposes of money. Credit does 
take the place of money in part. Can it take the place of 
money entirely ? Let us see. We have defined Credit as 
a rl(jht to demand something of somebody, and Debt as an 
obligation to render something to somebody ; the denomina- 
tions of Money are certainly needful in order to measure 
this rieht or oblio-ation ; and how can the denominations of 
money be established or maintained at all separate from 
the use of some money itself as a circulating medium? 
Moreover, great as is the undoubted power of Credit, vast 
as are these five advantages from its current use, still, each 
particular piece or form of Credit waits for something 
beyond itself ; it waits for its own extinction in future 
time ; which can only come about in one of three ways, 
(a) by set-off against another debt with or without a 
balance, (b) by renewal which creates a new debt and 
extinguishes the old, (c) by its payment in money; and 
now how can these extinctions come about without the 
current use of some money, at least to settle the balances 
at the clearing-house ? 

Furthermore, there have always been heretofore in all 



COMMERCIAL CREDITS. 343 

commercial countries longer or shorter periods, called 
" crises " or " panics," during which there was a popular 
reluctance to accept in exchange the ordinary instruments 
of Credit. Money, and much of it, was then found to be 
indispensable. Indeed the very advantages of Credit 
itself, which have now been explained at length, are 
dependent on this, that there be alongside of it to sustain 
and limit it, a current and legal measure of Services in 
metallic form^ in whose denominations Values may be reck- 
oned, in whose coins the balances of Credit may be struck, 
and whose presence secured everywhere by natural laws 
alone may enable fulfilment to join hand in hand with 
promise. If ever Credit should try to usurp the whole 
domain of Money, a tolerable standard of Value or meas- 
ure of Services would be no longer possible. Credit itself 
would lose its foothold, and the vast balloon of Promise, 
sailing for awhile through the blue, the joy of projectors 
and the wonder of credulous spectators, would of a sud- 
den descend to the earth collapsed and ruined. 

4. There are too some disadvantages inhering in Credit. 
This admitted fact makes no valid argument against the 
use and extension of it ; because there are disadvantages 
connected with all human devices whatever, — with all 
means contrived to reach earthly ends — and even a child 
may discover many of these ; some objections lie against 
everything, and against everybody, and the practical ques- 
tion always is. Which preponderates, the good or the evil ? 
In respect to Credit there can be no doubt, that the good 
outweighs the evil many fold ; still, in accordance with the 
purpose in this book of both writer and readers to look on 
both sides of each significant point in Economics, we will 
now give attention to the chief disadvantages inhering in 
the nature of Credit. 

(1) In the first place, when credit is much given by 



344 PRINCIPLES OF POLITICAL ECONOMY. 

dealers to ordinary retail buyers, the reverse results take 
place from those but just now characterized as happening 
under bank credits, namely, capital passes out from the 
hands of productive operators into hands less able and 
less willing to use it in further production. Indeed, in 
most such cases it ceases to be capital, and is expended in 
immediate gratification. It is much easier for the average 
man of fair character within the present customs of Society 
to "get trusted" than to pay "as he goes." Such a man 
is even called " easy-going." He almost always over- 
estimates his resources for the future, and under-estimates 
his obligations at the present. It is always a disadvantage 
in the long outlook for both parties when such men easily 
and largely "get trusted." Let us take a sample case: 
when an industrious artisan or efficient merchant has 
given credit for six months or a year to dilatory customers, 
it is so much withdrawn for so long a time from his active 
capital ; and in order to make up his consequent loss of 
profit to the average and expected rate, there must be an 
addition to the prices of his wares sold to other parties ; 
and, besides, some bad debts belong to such a system, and 
there must be additional prices somewhere to compensate 
for this ; and thus the customers who pay promptly bear a 
part of the burden of the delinquents, who at least do not 
wholly escape, inasmuch as they ultimately (if they pay 
at all) pay a price enhanced b}^ their own delay. Thus, 
if the current and expected profit on his capital be 12%, 
and the artisan or merchant sells and gets returns four 
times a year on the average, something less than 3 % profit 
may be charged to each article on the average ; while 
if he only gets returns at the end of the year, at best 
12% must be put on everything at the average, and in 
reality considerably more, because of the bad debts that 
stick like a burr to that way of doing business. Hence 
the excellent maxim, " Quick sales and small profits." 



COMMERCIAL CKEDITS. 345 

(2) There is a greater inherent uncertainty in values 
connected with credits than in those connected with com- 
modities, or than with those connected with personal ser- 
vices. We have already seen repeatedly that Value has 
its sphere of operations in the Past, in the Present, and in 
the Future. There is some uncertainty connected with 
what has been done in reference to value, since the market 
may prove to have been miscalculated, and the commodities 
to have become unsuitable ; there is perhaps more uncer- 
tainty connected with what ^s now being done in reference 
to value, because the services bargained and being paid for 
may prove to be less steady and skilful than was supposed ; 
but in the very nature of the case there is still greater 
uncertainty connected with what is to be done in relation 
to its value, because in the first two cases some at least of 
the conditions are already fixed, Avhile in the last one all 
of them are at least open to hazard. There is sufficient 
certainty in all three of the grand divisions of Time to jus- 
tify, and probably to reward, operations in each in reference 
to value under the peculiar limitations and conditions of 
each, but credits are naturally more sensitive in the law of 
their value than either commodities or services. 

(3) Largely in consequence of what has just been 
expressed under the last head, credit-exchanges are more 
likely than commodities-exchanges or than services-ex- 
changes to become unduly multiplied and consequently 
to fail of ultimate realization. The majority of men are 
sanguine in relation to the future. Unless they are in 
actual contact with their limitations, they are apt to belittle 
the rigidity and inevitableness of such limitations. As the 
outcome of this, promises are apt to overpass the powers 
of fulfilment. No more bales of cotton of any one year's 
crop can be actually delivered to buyers, than have been 
actually grown and marketed; the services of no more 



346 PRINCIPLES OF rOLITlOAL ECONOMY. 

men in any capacity can be contracted for and rendered, 
than there are men able and willing to work; here are 
impassable limits ; but the field of the future is buoyant 
with possibilities; and hence credits, whose sphere is the 
future, though legitimate and potent under the proper con- 
ditions, lie in a field whose limits are invisible, and within 
which Hope is ever a tempter to overdoing. 

Is sjDCCulation proper ? Certainly ; if by the word 
" speculation " is meant the buying of anything with an 
expectation based on rational probabilities of being able to 
sell it again under different conditions at a higher price. 
Speculation in this sense is both proper and beneficial to 
the immediate parties to it, and to the general public as 
well, because the values of things thus bought and sold 
neither fall so low nor rise so high as they otherwise would 
do, which is a public gain. Speculators as a rule buy 
on a falling market, which tends to lift it, and sell on a ris- 
ing market, tvhich tends to lower it. It is better for all 
concerned, that the necessaries and conveniencies of life 
should bear as steady a market as is possible in the nature 
of tilings, summer and winter, year in and year out ; and 
the ports of every nation should be o\)ew with the slightest 
possible hindrance in the way of tax to the corresponding 
necessaries and conveniencies from abroad, whenever com- 
binations and " corners " attempt to lift their prices beyond 
the level determined by a natural and free Supply in con- 
tact with the current Demand. 

Credits occupy the field of Probabilities ; that is to say, 
probabilities seeming to be such to men of sharp insight 
and cultivated forecast. When such men on such grounds 
buy and sell " futures " in cotton or corn ; when they buy 
and sell stocks either " short " or " long " ; when they seem 
to themselves to perceive a sound reason for lurching over 
from the "bulls" to the "bears," or vice versa; and when 



COMMERCIAL CREDITS. 347 

they really think that what they are wont to deal in has 
touched bottom in price, and they buy now in view of a 
rise , Economics has nothing to say in blame of any or all 
of these operations, for they are the same in substance and 
motive as all other buying and selling ; but nevertheless, 
it has this to say, that all these operations in credit-futures 
iie adjoining to and in dangerous proximity with another 
field, for operations within which it has nothing hut blame 
to utter. Gambling occupies the field of Chance. There 
is a great difference between chances and probabilities. 
Political Economy has no trouble in drawing a fast and 
hard line between them. 

But practically the operators in credit-futures experience 
an immense difficulty in keeping within this line of rational 
probabilities. The coolest heads are apt to become heated, 
and to lose sight of distinctions, in the close air of the 
Stock Exchange and the offices circumjacent. Some oper- 
ators openly confess they know nothing which way the 
index of reason points, by buying " straddles," as they are 
significantly called. A friend and old-time pupil, who has 
for years been accustomed to these excitements in New 
York, said recently to the writer, — " The Stock Exchange 
is a great gambling hell, and that's all there is of it!''"' In 
buying and selling of all kinds, both sides gain : in gam- 
bling of all kinds, what one side gains the other side loses : 
therefore, under a sound money, healthful public opinion, 
and good law, gambling never can become formidable. In 
every lottery scheme, no matter how honestly managed, 
the sum of the prices of the tickets is greater than the sum 
of the prizes offered, otherwise nothing would be left for 
the profits of the managers ; therefore, he would be a very 
foolish man, who should buy all the tickets of a given lot- 
tery with the certainty of drawing all the prizes ; and he is 
a still more foolish man, who should take his chance of 
drawing all the prizes by buying two or ten tickets. 



348 PRINCIPLES OF POLITICAL ECONOMY. 

(4) Another and a principal Disadvantage of Credit is 
seen in its usual action on prices through increased Demand, 
and its consequent tendency to bring about Commercial 
Crises. Awj man's whole purchasing-power is made up of 
three items : first, the property in his possession ; secondly, 
the values that are owed to him ; and tliirdly, his credit. 
He can buy services of the three kinds with these three 
valuables ; and the sum of his power to buy is exactly 
measured by the aggregate of these three valuables under 
his control. But while the first two, his property and 
debts due, are limited and ascertainable, the third (his 
credit) is indefinite and undeterminable beforehand. Being 
based upon coiifidenee^ which is itself sensitive and variable, 
a man's credit at One time may be vastly greater than at 
another, compared with his other two means of purchase ; 
and if he have the reputation of doing a safe and regular 
business, and is favored by circumstances, he will find 
himself able sometimes to buy on credit to an extent out 
of all expected proportion to his other capital. When, 
therefore, credit is offered and received for commodities, 
it has the same influence upon their prices as when money 
is offered and received for them. It follows, consequently, 
that there is likely to be a general rise of prices whenever 
there is an extension of credit for the purpose of purchas- 
ing ; indeed, when money only is used to buy with, there . 
can not be a general rise of prices, because while more 
money may be spent on some things, and they rise in 
price, there would be less money for other things, and they 
would rather fall in price ; but when credit is used freely 
in addition, and increased purchases go on in all depart- 
ments at once, there is apt to be a rise of prices as to all 
commodities and a universal spirit of speculation. 

At such times, and while prices are still rising, men 
seem to be making great gains ; everybody wishes to 



COMMERCIAL CREDITS. 349 

extend his operations by means of all his money and all 
his credit; and forms of indebtedness are multiplied on 
every hand. By and by it begins to be perceived in cer- 
tain quarters that the matter has been overdone ; specula- 
tive purchases cease ; banks become particular whose paper 
they discount ; men find it difficult to sell their debts due 
in order to provide for their debts owed ; they fall back 
on the sale of their commodities, but when holders are 
anxious to sell, prices always fall ; a panic now sets in, 
more irrational, if possible, than the previous overconfi- 
dence ; their inflated credits and commodities collapse in 
the hands of their holders ; sales at great sacrifices are 
inadequate to meet the mass of maturing debts contracted 
when confidence was high; men fail, and must fail; the 
banks cannot help them, or think they cannot; and so 
wide-spread commercial disaster comes in. 

Such commercial crises swept over the United States in 
1837, 1857, and 1873; and will doubtless recur in the time 
to come. They always arise from disordered credits, and 
though not necessarily connected with credit-money, are 
much more likely to come in connection with that. The 
more strong and conservative the Banks maintain their 
ordinary condition, the more powerfully can they operate 
to prevent or abate a panic. They ought always to be 
on the shore and never in the stream. From the very 
nature of banks and of the motives that create and operate 
them, they are apt to sell for a profit in ordinary times 
about all of the credit they safely can ; unless, then, they 
foresee a stringency some time ahead, and curtail their 
loans, and otherwise keep their position strong in reserves 
and deposits, they will be powerless to help even their 
most deserving customers when the panic sets in ; even 
then by a special association with other banks in the same 
city for reciprocal support during a crisis, as was happily 



350 PRINCIPLES OF POLITICAL ECONOMY. 

brought about in New York some years ago, something 
may be done for their common constituency and good cus- 
tomers to help them out of trouble by discounts continued 
to them ; especially as it is not money so much that is 
needed to allay a panic, nor even credit actually given, as 
it is a general knowledge that abundant credit can and 
will be given either by some pre-eminent bank, like the 
Bank of England in London, or by an association of banks 
for that special purpose, like the agreement just referred 
to as entered into temporarily by the banks of New York 
city. As a panic becomes innninent anywhere, some Bank 
or banks there ought to be in a position to extend their 
discounts freely, at a high rate of interest indeed, so as 
to discriminate between customers urgent for and deserv- 
ing of discounts, and another class whose need of accom- 
modation is not so sore, and a thii'd class who are sure to 
fail if the Panic stalks forward. 

A permission given of the Government to the Bank of 
England to overpass under these circumstances the Dis- 
count-limits laid down by the Bank Act of 1844, has on 
three several occasions acted like a charm to still the 
raofinofs of a commercial storm. On each of these occa- 
sions, 1847, 1857, and 1866, the Bank was forbidden by 
the Privy Councnl to discount for less than 10%. 

As the inclined plane of rising prices is slowly as- 
cended before a Crisis, so the fall of general prices 
afterwards seems to be rather gradual also till the lowest 
point of tli^un is reached, from wliich another ascent is 
a})t to commence. The following table taken from the 
New York Puhlie of the first week of November, 1881, is 
instructive on both these points. Taking the prices in 
18G0 of 43 articles of prime necessity, which constituted 
then and afterwards about | of the commerce of the 
country, as the normal standard or 100, the table gives the 



COMMERCIAL CREDITS. 351 

comparative gold prices of the same for four years previous 
to 1873 and for seven years subsequent, as follows : — 

1869 116 1875 107 

1870 118 1876 100 

1871 .120 1878 ....... 81 

1872 122 1879 ....... 98 

1873 113 1880 103 

1874 ....... 115 1881 • . . Ill 

(5) A penultimate Disadvantage of Credit may be 
noted in the facility which it offers for contracting great 
national Debts. There are certain aspects, under which a 
Nation may be properly regarded as a moral person, and as 
such person may pledge the public faith for the present 
and the future, becoming a debtor to its own people or to 
foreigners, and thus a public debt may be made a sort of 
mortgage on the national property and income. Now, it 
cannot be fairly denied, that incidental advantages may 
spring up in connection with such a national debt : for 
example, the bonds, which are its evidences, may open up 
to the people a convenient form of investment for pres- 
ently inactive capital, and for trust funds of all kinds ; 
there can be little doubt that certain classes of persons 
holding these national obligations are won thereby to a 
stronger patriotism and become better friends to stability 
in government, although this consideration applies mainly 
to new governments and to those temporarily endangered ; 
both England and the United States now make a portion 
of their public debt the basis of a national system of 
Banking, but it is perhaps questionable whether this can 
be justly put among the incidental benefits of the Debts ; 
and again " a moderate debt adds to the credit of a Nation, 
and its ability to raise money in an emergency, for bankers 
and capitalists are more ready to take such securities as 
they are in the habit of dealing in " (Sidney Homer). 



i5,)2 viUNi'iPLKs OK rt)i,iru'Ai, k.conomv. 

On the oiluM- haiul. \\\c ImhiUmis o( a Naiional Dobt arc 
vow apjKuriii : lor ovauipK', ilir annual interent charg'o to 
tho I'nion at ihi' iloso o( our lalo I'ivil war wiu^ (§^150, 000,- 
(*00, Avhicli grailually (UH'linod l\\ llio loworino- of the 
inlrrost-ralo anil 1>\ ihc paviiiL;' I't't' o( |irinri[tal to •StUjUJS.- 
iUii for tho tisoal year omlino- Juno oO, 18S1 ; hotwoiMi 
March, 18l)i\ ami Auo-ust, ISTo, tlu> ruitod States paid 
(i'oT 8,015,000 on tho prnu'i[)al oi its puUlio dobt ; tlu> ooIUh' 
tion of tho Internal Kovonuo alono of tho national o-ovorn- 
mont oost for tho iisoal voar tSOT, ?^7.71-.080; and in oaoh 
of tho two voars, ISTO and 1881, a litilo ovor 5i<l 01, 500,000 
Avas paid out to ro(hn'0 tlu^ }uinoipal of tho Ooht. All 
thoso vast sums oanto out id' {\\o industry and inoonio of 
indivitluals ; anil taxation to any dooreo as all this iinplios 
is a luig'htv disturbanoo io iutlustry, and Ljivos viso lo an 
arniv of olVioials uho oat out a i-onsidorablo poroontago of 
all tlioy oolloot. ^loroovor, tho various oxiHHlionts tvf tax- 
ation, whioh aro always praotioally lun-tpial u\ tlioir oj)ora 
tion, aro ajit to L;ivo riso ti> irritation anil ptditioal aoitatitui, 
and ovon souiotnuos to throats of ri>p\idiatii»n, ospooially 
mIiou tho oooasion has o-(H1o by luidor wluoli tho dobl was 
oontraotoil, and another ooneratiou is oallod upon to pay 
otY a debt it hail no aoonoy iu ereatino-. 

Here tho voxod question arises, how far has one genera- 
tion tlu' rl(//it to throw upou sucooeding ones the biudens 
of a National Debt? The true answer to this ipiestiou is, 
/7 haa d rcrif limited riijht iitdved. 'The opposite doctrine 
implies tacitly w hen not openly, that the sueceedinji- jvener- 
ations -will have no oooasion for extraordinary ex}>enses of 
their own, and, therefore, may rightfully he made to con- 
tribute to tho extraordinary oxponditnros o{ this oonera- 
tion. But it is pure assumption to take for oranted, that 
the next ovneratious will not liave, of some kind or other, 
as much oooasion for an extraordinary elYort in the way of 



COMMEKCIAL CREDITS. &•/•'> 

dci'cjjcf; Of of iinjMOV(;iri(;)iL as Ui<; pr';.sf;nt gcnoj'atiori Ijjik 
had. It is a coiniuoii hut fiannful iJluHiou to GHtimate 
what has now to be dono as of /nuclj more iinportajicc than 
what will have to be done. 'I"hej'ei'ore, to throw the pres- 
ent biird(;)i foj-ward on another generation of men, who are 
likely to have to make thfjir own Hpeeial exertion, just as 
great and just as imperatively called for, is a procedure 
unwarranted by past expeidence. The view that has long 
prevailed in practice, that a gi-eat Wai-debt, for example, 
might be easily and justly cast upon posterity, has again 
and again given rise to needless and expensive wars ; thone 
have been called upon to pay th(; piper, who perceived the 
utter inutility of the expenditure; and thus bitteiTiess has 
been added to burden. 

Besides, the men to fight the battles, and the capital by 
which to feed, clothe, and furnish them the munitions of 
war, muHt oo'me frora that f^eneralion ; and tlien; is always 
great injustice in the manipulations of a great debt osten- 
sibly incurred to obtain this cajjital, and the debt itself is 
usually in large part rathei- a memoi'ial of the war than of 
the means by which its expenses were actually defrayed. 

The generation of Ameriean citizens not yet wholly 
passed oft' the stage was called on in the Providence of 
God to suppress a Civil War of enormous proportions, and 
to eradicate a social institution that was thoroughly bad ; 
the expense of doing this was many fold enhanced by 
timorous counsels in the field, by class legislation in Con- 
gress, and by wretched financiering in the Cabinet; but 
the Debt, vast as it was, and needlessly incurred as a large 
portion of it was, has already in good part been paid off 
and must be entirely paid off by tin; generation that in- 
curred it. That this great task may be thus completed, 
will require (1) an economical administration of the na- 
tional Government; (2) an avoidance of intervention in 



354 PRINCIPLES OF POLITICAL ECONOMY. 

the affairs of our Neighboi"s, and of entangling alliances 
with Foreignei-s; (3) a free Commercial System, under 
\vhit.'h the taxes shall be adjusted only towards the most 
productive revenue ; and (4) a constant and onerous home 
Taxation. 

(6) The tinal Disadvantage of Credit is this, that it is 
apt to confuse the minds of men as to its own nature, from 
its apparent resemblance to something else, which is at 
bottom wholly unlike it. The people of the United States 
have suffered greatly from this confusion, and are likely to 
suffer from it still more in the time to come, both in their 
property and progress at home and in their good name 
abroad ; and it becomes all good citizens, and especially all 
those called upon to pronounce on the Law of the Land, to 
know thoroughly the radical difference between a Credit 
and a Quittance, and so to escape the contagious confusion 
that has entered and stirred up the popular, and even the 
judicial, mind of this country. All through the present 
chapter has been insisted on and illustrated the point, per- 
haps to the weariness of the reader, that Credit is always 
essentially the Promise of one person to another, and that 
whatever is thus Promised is necessarily and fundamentally 
different from the Promise itself. To confound those two 
things as if they were or could be made one and the same 
thing, is in thought illogical and in practice execrable. 

And yet it must be allowed, that there is somewhat in 
the nature of Credit, that makes this confusion plausible, 
or else it never would prevail; and also that there is some- 
thing more still to make it plausible in the nature of 
Money, which last point can only be cleared up in the next 
following chapter under that title. 

Mr. E. G. Spaulding of Buffalo, in his co})ious and excel- 
lent History of the Legal Tender Act, "• all of which he 
saw and part of which he was," as the chairman of the sub- 



COMMERCIAL CREDITS. 355 

committee of the Ways and Means at the time the Act was 
passed, demonstrates the extreme reluctance of everybody 
concerned to give a forced circulation, that is, a compul- 
sory legal-tender quality, to the first batch of Treasury 
Notes to the amount of $150,000,000 in Februaiy, 1862. 
We have already noted in another place in this chapter, 
that two successive batches of similar Notes, each to the 
same amount as the first, were issued within less than a 
year. These Notes then and since called Greenbacks, bore 
at the time four essential features: first, they were both in 
terms and in reality national Promises to pay to the bearer 
gold dollars of the then and present standard of weight 
and fineness, becaiLse there is no other possible meaning 
to the words "The United States will pay to the 
Bearer Five Dollars " ; second, in addition to their be- 
ing a forced loan from the people to the amount of notes 
authorized, they were given a forced circulation as money 
by means of the clause, " and shall also be lawful money 
and a legal tender in payraent of all debts public and pri- 
vate within the United States except duties on imports and 
interest on the national bonds,'''' which clause still recognizes 
gold dollars as the only universal and standard money; 
third, the notes were vaQude fundable in sums of fifty dollars, 
" or some multiple of fifty dollars," in six-per-centum gold 
bearing bonds of the United States, then called 5-20's, 
again in this clause recognizing the radical difference 
between the legal-tender paper promises as money and the 
gold dollars promised in them, in which gold money the 
interest and principal of the bonded debt must still be 
paid; and fourth, these notes were publicly known and 
acknowledged by the Issuer and the receivers to be pres- 
ently irredeemable, since the Government did not have, and 
did not pretend to have, any coin with which to redeem 
them, and everybody knew that they were made a legal- 
tender because t?iey were irredeemable. 



356 PRINCIPLES OF POLITICAL ECONOMY. 

These prompt recognitions of the impassable gulf be- 
tween a Promise and what is Promised, were contirmed 
by all that happened afterwards. The notes, notwith- 
standing they were legal tender and all bonds of the 
United States could at lirst be bought with them at par, 
almost immediately began to droop as compared with gold. 
The daily quotations showed a pretty steady decline for 
two years. On Jan. 15, '64, gold in greenbacks was 
100 : 155; April 15, 100 : 178; June 15, 100 : 197; June 
29, 100 : 250, that is, 10 cents to the dollar ; and July 11, 
100 : 285, or 35 cents to the dollar in gold, their lowest 
point. From this depth they slowly rose with many fluc- 
tuations back and forth from many causes for 14 years. 
Jan. 1, 1879, they became redeemable in gold, and have 
so continued till the present time. 

When the Civil War was all over, and these startling 
vicissitudes of the paper money were measurably for- 
gotten ; though no prominent man, when they were 
passed, thought the Legal-Tender Acts constitutional ; 
the paper money began to be popular; the distinction 
between a promise and its fullilment began to fade out 
of the minds of the people ; there had always been bank 
bills circulating as money in the country ; these had been 
called " dollars " equally with the coin ; and in December, 
1869, a test case, Hepburn vers2(S Griswold, was decided 
by the Supreme Court on the question, whether Congress 
had the constitutional authority to make anything but 
gold and silver lawful money in satisfaction of contracts 
entered into before the first legal-tender Act was passed. The 
question, Can Congress make such notes a legal tender 
for contracts made after the passage of the Act ? was not 
involved in this case ; but it was very clear from the 
Opinion of the court delivered by Chief Justice Chase, 
that the majority of the justices regarded the Act as being 



COMMERCIAL CREDITS. 357 

unconstitutional in its application to contracts made after 
as well as before the Act was passed. Upon the special 
question before the Court, the justices were divided in 
opinion ; five, including the Chief Justice, agreed that the 
Act was invalid so far as it made the notes a legal tender 
on contracts executed prior to its enactment; and the three 
other judges were of the opinion that it was valid. Of 
course, the Decision of the Court was rendered by a 
majority of two, that the Act was unconstitutional. 
Chase, Nelson, Grier, Clifford, and Field constituted the 
majority; Miller, Swayne, and Davis, the minority. 

Salmon P. Chase was one of the greatest men of the 
great period of the Civil War. He was Secretary of the 
Treasury at the time the greenbacks were issued, and they 
were issued at his instance and advice, but he was opposed 
to the clause that made the notes a legal tender. He 
never expressed the opinion that the Legal-Tender Acts 
were constitutional, nor did he expect that the notes, of 
which these authorized the issue, would ever become a 
permanent national money. This is evident from the fact 
that the notes were made fundable at his instance, not so 
much with the view of keeping up the value of the notes 
by giving them a present market in bonds, as with the 
view that they would help the sale of the bonds and would 
be absorbed by them as soon as the price of the bonds was 
above par in greenbacks. Afterwards Mr. Chase thought 
that this fundability of the notes into bonds would so far 
take up the notes as to stand in the way of the negotiation 
of further necessary loans to the Government, and at his 
instance this provision of the law was repealed. Conse- 
quently, there was nothing inconsistent between his posi- 
tion as Secretary and his later position as Chief Justice. 
He was undoubtedly right in both of these positions. 
The making the greenbacks legal tender did not probably 



358 PRINCIPLES OF POLITICAL ECONOMY. 

add one particle to their purchasing-power, but rather the 
reverse, because that feature implied a doubt on the part 
of Congress itself as to the validity and currency of such 
national promises-to-pay. That he was also right in his 
judicial opinion and decision, however subsequently over- 
ruled in his own Court, may be safely left to the inevitable 
future appeal to common sense and to the common prin- 
ciples of constitutional interpretation. 

This judgment in Hepburn versus Griswold was favor- 
ably received by the country at large, as being just in the 
line of the great decisions of Chief Justice Marshall, and 
as being exactly in accordance with Amendment X of the 
Constitution, namely, '' The powers not delegated to 
THE United States by the Constitution, nor pro- 
hibited BY IT to the States, are reserved to the 
States respectively, or to the people." The State 
of Massachusetts particularly, which has always main- 
tained and still maintains a strong doctrine of State 
Rights as over against, though in harmony with, the 
Rights of the United States under the Constitution, 
ajiplauded this judgment as sound in law and politics, and 
as risfhteous altog-ether. But the then administration of 
General Grant, inexperienced alike in law and politics, and 
linked in entangling alliances with the great corporations 
of the country, received the Decision with marked dissat- 
isfaction ; and it was especially offensive to the huge rail- 
road companies, whose bonds had been executed prior to 
Feb. 25, 1862, inasmuch as it made the princi})al and 
interest of these bonds payable in coin, which they had 
hoped to pay off in the depreciated greenbacks, made 
legal tender for all debts. 

The Administration lost no time in trying to bring 
about by fail' means or foul, a reversal of this unwelcome 
decision. E. R. Hoar of Massachusetts, at that time attor- 



COMMERCIAL CREDITS. 359 

ney-general in Grant's Cabinet, was the principal agent in 
accomplishing this end by means so discreditable that he 
lost in consequence his popularity in Massachusetts and all 
chance of further political preferment. The means chosen 
and put into effect was the appointment by the President 
of two new judges, Strong and Bradley, the first to take the 
place of Grier, resigned, and the second appointed under a 
law increasing the number of judges to nine, whose opin- 
ions on the point at issue were known beforehand, and 
who were selected to serve on that very account. " It was 
no secret, indeed it tvas a matter of public notoriety/, that 
these justices were appointed in order that the decision of 
1869 might be reversed. Their ojnnions in regard to the 
constitutionality of the Legal-Tender Acts had been clearly 
and publicly expressed. It was therefore pretty loell known 
what the decision would be when the question was again 
presented.''^ (Hugh McCuUoch.) 

The second Legal-Tender case, accordingly, that of 
Knox versus Lee, decided in December, 1870, reversed the 
judgment of a year before, no new points therefor being 
raised either by the new judges or by counsel in the new 
trial, the Chief Justice and his three former associates still 
adhering to their original opinions. It was then five 
judges to four, the special question being. Is it constitu- 
tional to make promises-to-pay a legal tender on contracts 
executed before the promises were issued ? The judicial 
answer was in this case. Yes ; provided Congress regarded 
such action as a necessary means of preserving the Gov- 
ernment in time of War, or any other period of extraor- 
dinary emergency. That is to say, bona fide creditors were 
constitutionally bound to receive depreciated notes as legal 
tender in satisfaction of contracts entered into when no 
notes were in existence ; to receive on contracts specifi- 
cally calling for '•'•dollars " the depreciated notes of the Gov- 



360 PRINCIPLES OF POLITICAL ECONOMY. 

eminent merely promising to pay " dollars,''^ but on which 
the "• dollars " coukl not be obtained ! What is that, but 
the monstrous incongruity that a proynise is the same 
thing legally as its fulfilment ? What is that but judi- 
cial blindness as to the nature of Credit? What is it but 
the old confusion between names and things ? What is it, 
finally, but the dazed and hazy vision, pardonable perhaps 
in the popular mind but half-opened to radical distinc- 
tions, but unpardonable in learned men professing to lay 
down the law in a civilized coui;try ? 

It is scarcely needful to add, that the Supreme Court of 
the United States suffered in the judgment of good citi- 
zens by that transaction ; that the best legal and financial 
opinion of the country yielded little respect to a decision 
thus secured ; and that intelligent people do not believe 
that constitutional law can sanction what contravenes at 
once common sense and common morality. 

Judge Field (and his memory the country will not wil- 
lingly let die), one of the majority in the first decision, and 
writing the opinion of the dissenting minority in the sec- 
ond, used this strong but just language, '•'•It folloivs, then, 
logically, from the doctrine advanced hy the majority of the 
Court as to the poioer of Congress over the subject of legal 
tender, that Congress may horroio gold coin upon a pledge to 
repay gold at the maturity of its obligations, and yet in direct 
disregard of its pledge, in open violation of faith, may com- 
pel the lender to take, in place of the gold stipulated, its oion 
promises ; and that legislation of this character woidd not he 
in violation of the Constitution, hut in harmony with its let- 
ter and spirit. What is this but declaring that repudiation 
by the Government of the United States of its solemri obliga- 
tions ivould be Constitutional ? " 



MONEY. 361 



CHAPTER V. 



MONEY. 



The subject of Money presents few difficulties, or rather 
none of any depth, to one who has thoroughly mastered 
the subject of Value. To all others the difficulties are 
insuperable. Essay after essay and volume after volume 
has been written in this country upon Money, by men 
who would have become good economists and good mon- 
etaries, if they had only begun their inquiries at the right 
place and followed them in the right direction. As we 
saw in the last chapter that it is impossible for anybody to 
understand the subject of Credit without first comprehend- 
ing the matter of Value, so we shall see in this chapter 
that in the order of Nature Value precedes Money, and 
that the latter can only be learned in the light of the 
former. The logical reason for this in general is, that 
Money itself is always a Valuable, and comes to its func- 
tion as money only through a comparison of itself with 
other Valuables. 

The thin difficulties that confront the student of Money, 
who has reached the topic along the proper highway cast 
up for economical inquiries, arise apparently from two 
sources ; and we will begin our present discussion by first 
looking at these in their order. 

In the first place, Money is the only Valuable that may 
belong to two out of the three possible categories into 
which Valuables may be scientifically thrown. All Valu- 



362 PRINCIPLES OF POLITICAL ECONOMY. 

ables are either Commodities, or Services, or Credits. 
Tliese categories never change places. Once a Commod- 
ity always a commodity, so long as value can be predicate 
of it ; a personal Service can never take on any other valu- 
able form ; and a Credit is ever a credit, and nothing else, 
until it is annihilated by Fulfilment. Now Money is the 
only Valuable that ever appears in two of these forms. 
The same Dollar indeed cannot be both a Commodity and 
a Credit ; but some Dollars are a Commodity cut out from 
gold and silver, and some other Dollars (so-called) are a 
Credit issued by Government or parties responsible to 
government ; while Money as a general term properly 
enough covers both kinds of Dollars, the Commodity-Dol- 
lar and the Credit-Dollar. In other words, Money is of 
two kinds, and only two kinds, either a Piece of valuable 
metal stamped as to weight and fineness by the image and 
inscription of Csesar, — a Commodity ; or a Promise to pay 
to somebody some of these pieces, — a Credit. This unique 
peculiarity of Money, by which, always a Valuable, it may 
appear and does appear in two out of three possible pre- 
dicaments of Valuables, makes a little difficulty at the 
outset of its discussion, and requires continued care in 
formulating its scientific propositions. 

In the second place, a more considerable difficulty, and 
yet a slight one still, is found in the fact that the choices 
and the legislations of men have more to do in shaping 
the propositions of Money than in most other economical 
propositions. It is true, that Nature and men cooperate 
in the determination of every case of Value whatsoever ; 
while there is a difference in the cases, though perhaps not 
a distinction, in respect to the fixedness and universality 
of the natural laws involved, in contrariety to the })urely 
human impulses concerned. The Providential elements 
in Economics, both the social and the physical, are of 



MONEY. 363 

course relatively fixed and unchangeable, otherwise Science 
could not grapple with and classify them ; and so also are 
those principles of Human Nature related to exchanges, 
which may be said to be universal in their character, — 
such as, for example, the preference to receive a larger 
rather than a less return-service, and to render a smaller 
rather than a larger effort ; and at the same time there 
are other principles of human nature related to exchanges 
much more variable in their character than these, such, for 
instance, as the nation's choice of the kind of Money it 
will use, or the kind of Taxation it will impose. It cer- 
tainly follows from this, that some Economical laws must 
be more general than others, owing to a less variation in 
the human impulses concerned in them : it follows, for 
example, that the law of landed rents, or the law of the 
approach of the price of raw materials to that of the fin- 
ished products, is more universal in its terms of generaliza- 
tion than most of the propositions of Money and Taxation 
can be. 

It seems like a paradox, that those parts of Economics 
in which the human elements of variable choice may 
predominate over the relatively fixed laws of nature and 
of mind, should be just the parts hardest for men to catch 
clearly and hold firmly ; because, we naturally think, that 
difficulty and mystery are rather to be found in those 
departments in which an Infinite Mind has been at work 
upon an infinite plan, and that there is no such profundity 
in the works of men ; but after all, even those natural 
laws like Gravitation, which are clear and universal as 
laws, if they be such as the devices of men have to do 
with, such as may be modified and in a certain sense 
controlled by human actions, become from that very 
circumstance liable to some difficulty and perhaps to some 
mystery. Now all the truths of Money, and as we shall 



364 PRINCIPLES OF POLITICAL ECONOMY. 

see in the final chapter all the truths of Taxation also, 
belong to this class of less general generalizations ; still, 
it is scarcely less than foolish to say, that Money is such 
an elusive and ideal agent that nobody can understand it. 
That is the language of indolence and lack of penetration. 
Money is wholly a matter of man's device, though it comes 
into constant contact with something greater and more 
fixed than itself ; it was invented, just as any other in- 
strument is invented, to accomplish a certain economical 
purpose ; and it would be strange indeed if men by taking 
pains could not perfectly comprehend what men them- 
selves have wholly devised. We hope, accordingly, in 
the following paragraphs to clear up completely to all 
intelligent readers the whole doctrine of Mone}'. The 
key to unlock all the superficial difficulties (and there 
are no others) is this : Money is always a Valuable before 
it becomes money, and continues a valuable independently 
of tlie fact that it is money ; and, it is always one or other 
of two kinds, either itself a Commodity or a Promise to 
pay a commodity. In this chapter, we will not begin 
with definitions and justify them afterwards, but will 
come up to them step by step, and, as it were, justify them 
beforehand. 

1. Economical Exchanges may begin, be profitable to 
both parties, and go forward to a certain extent, without 
the use of any money at all. As a matter of fact and 
probably for a long time, while the Civilizations were 
gathering their inchoate forces for a further progress, men 
exchanged one Service directly for another without the 
intervention of any medium. This form of trade is called 
Barter. King Hiram of Tyre furnished to King Solomon 
of Judea a certain quantity of cedars from Mt. Lebanon 
for the building of the new Temple at Jerusalem, and 
Solomon in return furnished to the Tyrians a certain 



MONEY. 365 

quantity of wheat and oil, Judea being a fertile agricul- 
tural country with no forests, and Tyre a wooded country 
with no farms. This may well serve us as an instance of 
Barter, although Money had been in current use in those 
regions a thousand years before, as is seen in the purchase 
by Abraham of the cave and field of Machpelah, for which 
he weighed out '•'■four hundred shekels of silver, current 
money ivith the merchants." 

It is obvious, however, that while Barter is a good deal 
better than no exchanges at all, there are inherent and 
immense difficulties in that form of trade. 

(a) Under Barter trade is extremely limited in its 
personnel. Only those parties can engage in it, each of 
whom is in position to render to the other just such a 
Service as the other is in direct and immediate need of, 
and each of whom also wants another Service in kind and 
quantity exactly what the second man has to render. It 
is not enough under these conditions, that a man should 
have some Service to sell, but he must also find some 
other man, who not only Avants that specific service but 
who also has some service to render in return just such as 
the first man wants. If A has wheat which he wishes to 
exchange for a coat, he must first find a party desiring 
wheat and also having a coat to sell, and moreover who 
wants just as much wheat as will pay for a coat, no more 
and no less ; if he wants more, he may have nothing to 
render for the excess which A is willing to accept ; if less, 
A may have nothing besides Avheat with which to help pay 
for the coat. Even in the simpler states of Society the 
inconveniences of thus hunting up a specific market for 
each specific service are very great, and in more advanced 
states of civilization would become intolerable, if it were 
possible (as it is not) for Society to become advanced 
under such conditions. 



366 pinNcii'LKs OK i'(»i,i ricAi. economy. 

(^I») lUirtcr pmsi'iils insuporablc obstacles to tiitdo in 
point ol' phur. Whili' mm still oxchang'od in kind, as it is 
called, and knew no oilier mode, the j>ni'ehasing-power of 
any Service was neeessarily I'onlini'd to (hat locality, and 
wonld not be ])arted with except in ^■ie\\ ol a it'tnin 
service actnally tluTc |)rcsciil in the same plai-i'. 'IMiero 
eonld bo no connni-rcial I'onlat-t withont a loi-al I'ontai^t. 
The nltimatr parlies to evi'ry exchange nnist come to- 
gether lace to lace. Theie conld bi- no middle-miMi or 
dislribntors. The marki-t was cin-umscribcd to the 
handet. 

(^c) Rnyino- and scUiiiL;' nndcr (he s( lu'iiic of Karter is 
also wretcluMlly linnted in point o[' tiiiir. 'IMic frnit-dealer, 
for example, nuist dispose \>{ his prodncl ipiickly, or it 
perishes on his hands. So of man\' other conuiKxhties. 
If they are to be sold at all, they nnist be sold cpnck. 
The ultimate buyer mnst Ih' on hand in tini(\ As the 
result of these thret' concomitants k\[ iJailcr, ten thonsand 
things that are now bon^ht and sold to protit never came 
to a market or thon^ht of a maiket, exidiann'cs were so 
limited in time and place and variety, human associations 
were so hampci-cd, and the dcvt'lo|iment of all {X'l'uliar 
talents so impt'ded, that one of the initial sti'ps in the 
progress of all Ci\ ili/,atii)n has been to hit upon some 
expedient to lessen thi'se intrinsic ditlfieulties, and so lo 
facilitate Exchanges. 

2. The InvcnticMi of iMonc\' was nothing in llu' world 
but the tcntati\t! selci'tion b\ cci'tain people in a i-i-rtain 
locality of sonu' Commodity then and there tu(Iu(ihli\ that 
is, capable of buying .s(>)iic things then and there, and 
gradually giving to that connnodity by general consent 
the capacity of buying all things then and there salable. 
The connnodity thus sloMly lu'coming money, whatever it 
was, had and must have had a Ihiiited purcliasing-puwer 



MONEY. 3G7 

to start witli, l)eoau,se no instance to the contrary has ever 
1kh;ii shown, and still more because that peculiar com- 
parison between two things that lies at the bottom in each 
single case of Value is exactly the same kind of compari- 
son that liolds between money and the many things which 
money purchases ; given a valuable in common use as a 
starting-point, and the transition is easy and natural to 
a generalized valuable, that is, to a recognized money ; the 
relation of mutual purchase between the commodity and some 
other things was a common fact to begin with, the making 
it money was merely the common consent tliat thereafter it 
shoiihl liave a general purchasing-power withhi tlie cii-cuit ; 
so that as a simple result, whenever anybody had anything 
to exchange, he might lirst exchange it for tliis selected 
product, wliich was valuable before but is now generally 
valiia]>l(!, and then with this money-juoduct in hand he 
could l)uy wliatever he might want at any time or place 
within the circuit. 

It is impossible from the very nature of Value, impos- 
sible from that comparison of two distinct Services, that 
precedes every Exchange, as well under Money as under 
Barter, that anything except a valuable anterior to and 
independent of its becoming mone}^, could ever have be- 
come money at all. Money makes no alteration in any 
law of Value, but only substitutes foi- convenience' sake in 
every transaction in which it plays a part, a general for 
a specific pui'cliasing-power ; a book, for example, has a 
specific purchasing-power, since there is somebody who 
wants it, and is willing to give a sum of money foj- it; and 
the owner of tlic l)Ook l)y the sale of it parts with a product 
which has only the power to purchase something from a 
few persons, and receives a product in return which has 
the power to ])urchase something fiom all persons ; it is 
not trqc to say that the mcniey is worth more than .thq 



368 pei:nciples of political economy. 

book, because they are just worth each other, as is demon- 
strated by the sale ; but it is true to say that the seller 
of the book has substituted in the place of a limited 
purchasing-power, of which he was proprietor, a general 
purchasing-power, of which he has now become proprietor; 
that is, that the connnand of the money, which has no 
larger value than the book had, does carry along with it a 
superior command over purchasable articles generally. 
In one word, Value in the form of money is in a more 
available shape for general buying and selling than value 
in any other form. This is the exact and ultimate expres- 
sion for all the truth there is in the common vague remark, 
namely, that Money is something different from all other 
Valuables ; it is different from them in just one respect, 
namely, while they have the power of buying some things 
from some persons, it has the power derived from the con- 
se7isus of Society to buy all sorts of things from all sorts of 
persons. 

This simple change or substitution, which seems in 
itself so little and easy and natural, has changed in its 
ever-enlarging results the face of the world I It makes 
the valuable now selected to be money seem to the minds 
of men to be a very different thing from what it Avas 
before, although the change in itself is slight indeed. It 
removes most of the inconveniences of Barter as by a 
stroke of the hand. So soon as a commodity selected to 
become money by one people comes to be acceptable as 
such to all other peoples, as is the case with gold, the 
advantages of its use are vastly multiplied to all. Experi- 
ence has shown many times over, and reflection will 
explain to any one, how that there is no other machine 
that has economized labor like money : no other instru- 
ment that plays so deep and broad a part in Production ; 
no invention whatever, unless it be the invention of letters. 



MONEY. 369 

which has contributed more to the civilization of man- 
kind. Money makes vast distances relatively indifferent ; 
for it is sufficient to constitute a market for any valuable 
that it is practically wanted anywhere on the round globe, 
the middle-man paying the seller for it in money transports 
it thither, and receives back his investment with a profit 
from the ultimate buyer. So, also, money generalizes any 
purchasing-power in point of time. The dealer, exchang- 
ing his perishable products for money, may keep its power 
of purchase locked in this form as long as he lists, putting 
an interval at his own pleasure between selling and buy- 
ing, and with this generalized power in his pocket he may 
buy when he will and what he will and where he will. 
Money, too, makes any purchasing-power portable, divisi- 
ble, and loanable. A man may carry the value of his 
farm in his purse, and may divide it up for a thousand 
different purchases, and especially is able to loan it in this 
form in order to receive it back again with interest at a 
future day. 

3. It is important to notice in the next place, that, 
whatever made the commodity selected as money origi- 
nally desirable and valuable, it has now become desirable 
and valuable for other and wider reasons. The tobacco of 
Virginia, for example, in the early days of that Colony, 
became valuable at first on account of the demand for it as 
a narcotic both there and in England ; but as soon as it 
was made a legal money in the Colony by the general 
consent already described, its value depended in part upon 
another set of causes. Of course Demand and Supply still 
controlled its value just as before, only certain parties who 
had not desired it before as a mere commodity thereafter 
desired it as a current money. Its convenience and neces- 
sity as money widened the circle of those parties willing to 
receive it and glad to render a return for it. It is true, 



370 PRINCIPLES OF POLITICAL ECONOMY. 

that many now received it only because they could pay it 
out again to buy something else with ; but that made no 
difference so far as Value is concerned ; it was valuable 
before under a certain limited demand, and continued val- 
uable under an additional and broader demand ; we cannot 
certainly say, that it became more valuable under this new 
and wider demand, because we do not know how the then 
combined demand affected the Supply. We may probably 
say, that the value became steadier if not larger^ under the 
double demand than under the previous single one ; and 
the vital point to mark and remember is, that the value of 
money^ previously valuable as a commodity only, is still 
maintained under the law of Demand and Suppl}^, just as 
all other values are, the only peculiarity being this, namely, 
as a generalized valuable and consequently a potent social 
agent money is in demand by everybody who has anything 
else to sell. 

It follows from this in necessary sequence, that Money 
as such, whatever may have been the ground of its origi- 
nal value as a commodity, is ahvai/s received as money in 
order to he parted with. It is not bought for its own sake 
to be used and enjoyed, as most other things are, but is 
only bought to be sold again. Men will sell everything to 
buy it, with the sole intent to sell it again to buy some- 
thing else ; and the odd thing about it is, that everybody 
buys it to sell again, not at all as the speculator buys grain 
to sell it again at a higher price by the bushel or centner, 
Imt, the money remaining constant in their minds, they 
sell for it something they care less about in order to buy 
with it something they care more about. Money, there- 
fore, becomes a medium in men's exchanges. The word 
" medium " in this proposition is to be taken in its etymo- 
logical and strict sense, as something that comes between 
two extremes and serves also to relate them to each other, 



MONEY. 371 

This is not the ultimate characteristic of Money, as we 
shall see, nor can a final definition be founded here, but it 
is a good step towards ultimates to see that money is ex- 
changed for other things as a means and not as an end, that 
it is a great help in exchanging all other valuables but is 
never exchanged for itself in an ultimate transaction. 

Small boys, indeed, sometimes swop cents ; but men, the 
miser excepted, who is under a deplorable fallacy of the 
senses, use and estimate money mainly as the medium that 
facilitates the real exchanges of Society. What is actually 
and ultimately exchanged is the wheat, the cloth, the lum- 
ber, the furniture, the commercial service of every kind, 
and Money is but the instrument making those exchanges 
easy, which might perhaps go on in part without it, though 
with difiiculty and loss. In short, money is somewhat like 
a railroad ticket. Transportation to a given place is what 
is really bought when one pays for a railroad ticket. The 
proof of the purchase is the bit of paper exhibited. That 
comes in as a medium between the traveller and the rail- 
road company ; and while it facilitates the real exchange, 
it also partly disguises it. This comparison holds good in 
the main feature, but in two respects the resemblance fails : 
Money is not a specific ticket for a single purpose, as the 
pasteboard is, but is a general ticket (so far as it goes), for 
all purposes of purchase ; and secondly, Money really 
stands as a value in its own right (so far as any single 
thing can so stand) at the same time it is serving as a 
medium, while the railroad ticket does not. Still, we are all 
desirous to get money, not for the sake of the money itself, 
but for the sake of those things which the money will buy. 
We part with money freely and constantly for those things 
which we care more about. What we exactly care for is 
what our money will buy, is the conscious command over 
all services and commodities which the possession of money 



372 ruiNCiPLEs of political economy. 

insures to us. If we eould give our own oouimoditv or 
service or claim, wluucvcr it mav be. and receive tlirectly 
in return the claim or commodity or service which we 
want, whatever that might be, there would be no need of 
monev at all; but this is alwav-s inconvenient, and gener- 
allv impossible ; and. therefore, we introduce a middle term, 
and money is found to be a gooil n\ean to \\Ap exchange 
the two extremes. 

4. We are now getting on towards a just conception 
and a true detinition of Money, though two or three more 
points must still be noted as ineparatory to that consum- 
mation. As a result of the fact alreaily reached, that 
money serves as a wrJiuin in men's exchanges, it follows 
of course that the power of money as such a medium is 
multiplied by what has been called r(if>i(h't// of ('in'ulation, 
that is, a brisker use of the volume already in eircnlation 
will reach the same end as the increase of its volume. As 
in mechanics, so in moiu\v, the whole power is the product 
of mass and velocity. Money also is like any other tool, 
the more constant its use the more profitable its agency. 
The quick movement of a small mass, accordingly, is better 
than the torpid movement of a large mass, both in what 
it saves of expense, and in what it presupposes of the gen- 
eral conditions of exchange. The value of the money- 
volume of any conntry is a small fraction of the aggregate 
value of those products which the money helps directly to 
exchange: and a very small fraction indeed of the aggre- 
gate value of all the products whii*h it helps indirectly to 
exchange through Credit by means oi its (h-noniindtions. 
We shall see better a little farther on, that Money works 
not only as a medium direct, itself exchanged against other 
Services, bnt also as furnishing those denominations of 
Value, like the dollar, which are always used in bargain- 
ino- : and also used in all cases of Credit, in which settle- 



MONEY. 373 

moiit is not made by money but by off, setting one piece of 
iudobtedness against another, and these denominations can 
arise only IVoni the use of money as a direct medium. 
'J'herefore, we may say that the hub and the spokes and 
tlie rim of the wheel of exchange consist of personal ser- 
vices and coiiimei'cial credits and all material commodities 
except mon(;y, wliile, to borrow the famous comparison of 
Hume, "Money is Ijut the grease which makes the wheel 
turn easier." It would be a vast mistake to suppose, as 
some of the ancients did, that the grease is really the 
wheel. 

While Money thus facilitates the revolution of the 
wheel of Exchange, it follows too from its* nature as a 
medium, that the dimensions of the wheel as a whole are 
vastly greater than they would have been but for the 
Money. Money indeed helped to exchange the products 
that already existed and were coming into existence at its 
first invention, but by far the largest part of products since 
have come into existence largely through the agency of 
Money. We get quite too low a view of the functions of 
this potent agent, if we think of it merely as an aid in cir- 
culating products, that would have existed whether or no ; 
some products would certainly have existed whether or 
no, and money would surely be of great use and conven- 
ience in helping bring these to the ultimate consumers ; 
but this is a j)artial and wholly inadequate view of the 
function of Money as a medium of exchange. The fact 
that such a medium is in universal circulation, and that 
the present holders of it are ready to exchange it against 
any sort of Sei'vices adapted to gratify their desires, exer- 
cises a kind of creative power, and brings a thousand 
products to the market which would otherwise never have 
come into existence. Since money will buy anything, men 
are on the alert to bring forward something which will buy 



374 PRINCIPLES OF POLITICAL ECONOMY. 

money; and since Money is divisible into small pieces, an 
incredible number and variety of small services are brought 
forward to be exchanged against these pieces, for example, 
into railroad cars and fares of all sorts, which services we 
have no reason to suppose would ever be brought forward 
at all were it not for the strong attraction of the money. 

5. From this last point of view we may gain another 
closely connected with it, namely, that Money must be a 
very important part of the Capital of the world. We 
have already thoroughly learned that Capital is any 
product outside of man himself from whose use springs a 
pecuniary increase. Now any one may see that the mone- 
tary medium of any country is the most active and the 
most essential and the most profitable of all those instru- 
ments reserved in aid of further production. The axe, the 
plough, the spindle, the loom, the wheel, the engine, are 
all instruments, are all Capital, and they each aid respec- 
tively some part or parts of the processes of Production ; 
but Money is a form of Capital which stimulates and facili- 
tates all the processes of Production without exception. 
Just as we have seen that Money is a form of Value gen- 
eralized, so is it also a form of generalized Capital, that is 
to say, it is an instrument capable of aiding all processes 
of Production in every department, while every other capi- 
talized instrument is capable of aiding but few processes 
in one department. Without Money, for instance, there 
could be no thorough Division of Labor, because there 
would be no adequate means of estimating or rewarding 
each one's share in a complicated process. By means of 
Money all services small or great contributing towards a 
common product are neatly measured, and may be paid for 
by some one, who thereby becomes proprietor of the whole 
product ; or, if the contributors choose, they may wait till 
the product itself is sold, and then the money received is 



MONEY. 375 

divisible without loss to each contributor, according to the 
service rendered. Thus the influence of Money as Capi- 
tal pervades the wliole field of Exchange from centre to 
circumference, facilitating every transfer and stimulating 
new transfers. 

Now then, if Money be, as it is, a peculiar kind of Capi- 
tal, since it is a Medium in all Exchanges, the question 
becomes pertinent. How much of it is wanted ? Clearly, 
only so much as will serve the purposes which such a 
medium is fitted to subserve ; there should be enough fairly 
to mediate between the Services actually ready to be ex- 
changed then and there, and also enough fairly to call out 
other Services proper and profitable in the then circum- 
stances of Society, and whose only obstacle to a profitable 
exchange then and there is a lack of a facilitating medium. 
All increase of the volume of money beyond this point, 
which the very nature of Money itself marks out as the 
boundary, leads to a diminution of Value of every part of 
it, to a consequent disturbance of all existing monetary 
contracts, to a universal rise of prices which are illusory 
and gainless, to unsteadiness and derangement in all legiti- 
mate business, and to a spirit of restless enterprise and 
speculation which seeks to draw off the excess of money 
in untried and reckless experiments. The only real sub- 
jects of Exchange are mutual efforts, mutual services, as 
these are expressed in Commodities and Services and 
Credits, and money is the instrument merely that comes in 
between tlie real exchanges to facilitate them ; and, there- 
fore, it seems to be perfectly conclusive on this point to 
remark that the quantity of money needed in any country 
or the whole world is limited by the number of the ser- 
vices ready to be exchanged, to make easy the exchange of 
which is the good purpose and sole end of Money. 

The physical and mental powers of man, which alone 



376 PRINCIPLES OF POLITICA]. ECONOMY. 

can give bii'tli to commercial services, when considered as 
they must he in this connection as belonging to a given 
number of men at a given time and place, are strictly 
limited of course; and althougli the presence of money 
tlien and there is both a stimulus and an aid to all these 
men to bring forward services of all sorts to the mai'ket, 
there are obvious restrictions both in their powers and in 
their circumstances ; and the quantity of money needed 
among them is just that quantity which will fairly act as 
a medium in exchanging the services which they are able 
and willing to render to each other. All increase in the 
quantity of money beyond that point Avould have, and 
could have, the only effect of increasing the nominal Prices 
of Services, without making the services themselves any 
greater in number or better in (juality. 

Tt is with Money exactly as it is with any other form of 
Capital, allowance being made for the fact that Money is a 
kind of generalized capital. To illustiate, TIow many ships 
does a connnercial nation need to employ ? As many as will 
fairly take off its exports and bring in its imports. Ships 
are wanted for one definite purpose ; and when enough are 
secured to answer that purpose, all additions will lessen the 
Value, that is, the purchasing-power, of ships generally. 
So of all instruments whatever. Enough is as good as a 
feast. Enough is better than more. In regard to every form 
of Capital, and consequently in regard to Money as such, the 
l)oint of sulliciency is determined by the quantity of work 
to be done. And as no law of (\)ngress is rccpiircd to 
determine how many ships ai-e best to do the transportation 
for the people of the United States, so no legislation is 
needed to fix the amount of Money that is best for the 
same people, or for any peo})le. As the people find out 
for themselves how many steam-engines they want to do 
their work of the year, so they find out without any aid 



MONEY. 877 

from their legislators how much money they want to make 
their exchanges of the year. The less Law and the more 
Liberty on all such points the better for all concerned. 

Let the reader notice in passing, as a corollary from 
what has just been shown, that when forms of Credit like 
bank cheques come into growing use to make payments 
with and settle balances, they displace to a large extent 
commodity-moneys, like gold and silver, which would other- 
wise have to be em[)loyed. Speculations, and even scien- 
tific discussions, over the needful amounts of gold and 
silver for money in the United States, have usually over- 
looked this essential consideration of displacement ; and 
one result of this has doubtless been too large a coinage of 
the precious metals, to the hazard of their stable value, 
and especially to the hazard of the permanent maintenance 
of the gold standard. Men forget in their zeal for Money 
that it is nothing but a Tool, and that the multiplication 
of tools beyond the amount of work to be done by means 
of them always makes the tools a drug ; and they are apt 
to forget also that the cheaper and more convenient sub- 
stitutes for metallic moneys, namely, forms of Credit, are 
all the time and more and more taking the place of the 
older moneys, which, nevertheless, must still be kept at 
the foundation, though a lessened quantity of them be 
needful for circulation. 

6. We must now carefully sink our analysis one grade 
deeper, in order to reach the bottom characteristic of 
Money, and so to formulate an ultimate definition of it. 

The only quality common to all valuable things is the 
fact that they are all salable ; and if these various and 
multitudinous valuables are ever to be made in any way 
commensurable with each other, it must be by means of 
one of their number assumed as a standard of comjjarison 
with the rest. Comparisons can only turn on points of 



378 PRINCIPLES OF POLITICAL ECONOMY. 

likeness. The single respect in which all valuables what- 
soever resemble each other is their common possession of 
purchasing-power, be it more or less. Therefore, as a 
yardstick, itself possessed of length, and because it is pos- 
sessed of length, if assumed as a standard of comparison 
with other objects that have length, may be used to meas- 
ure all such objects whatsoever, and may accurately express 
in units or fractions of itself the simple length of anything 
and everj^thing ; so, any valuable may be selected as a 
standard with which to compare all other valuables, and 
by means of the terms of which to express numerically 
the reciprocal relations between all valuables whatsoever. 
This is just what is done whenever any valuable is selected 
as Money ; and this is the exact and single purpose of such 
selection. 

What is the precise change, then, in the valuable chosen 
as Money when it becomes money ? This : it was a valu- 
able before, else it could not by any possibility serve the 
present purpose, but now it has become a standard valu- 
able, with which other valuable things may be compared 
in the single point of their value. Valuables are now 
commensurable. That is all. But that is a great deal. 
As we have already learned to the nail. Valuables are all 
Services ; and now some one Service has been selected 
from the rest, capable in its very nature of measuring all 
the rest, and so capable of becoming immensely usefid to 
mankind. 

What, accordingly, is the bottom characteristic of 
Money ? And where shall we find the terms for an immu- 
table definition of it? The core of Money is this quality of 
being a Measure of Services, taken on in addition to the 
usual and universal qualities constituting anything a Valu- 
able. This additional quality arises under the choices and 
action of men, just as the ordinary qualities constituting 



MONEY. 379 

anything a valuable arise under the choices and action of 
men. But it is an additional quality, distinctly conferred, 
and- vastly important. The valuable chosen as Money was 
a Service to start with, was constantly rendered as such 
then and there, and was consequently fitted by qualities 
already possessed to assume a further and a unique 
quality, namely, the capacity to measure and express 
relatively to itself all other valuable Services whatever. 

As each and every Valuable is the outcome of a com- 
parison instituted by two persons as between two things, 
as is thoroughly unfolded in the first Chapter, it is not at 
all strange, rather it is natural and inevitable, that there 
should arise in connection with Valuables as a whole class 
some such further comparative measure, as Money is now 
shown to be ; because, without some such common measure 
of Services in general, itself a Service of the same kind, it 
would be inconvenient, not to say impossible, to carry on 
any considerable traffic anywhere. For instance : a baker 
has only loaves of bread, and wishes to buy a hat, a horse, 
a house. How many loaves shall he give for each ? Un- 
less there be some common Service, in the terms of which 
these differing Valuables can be expressed, and by means 
of which they can be brought into commercial relations 
with each other, it would be an awkward piece of business 
to effect even the three exchanges; and every time the 
baker wished to buy another article, there must be a rude 
and slow calculation from independent data, in order to 
decide upon the terms of the exchange. Let now some 
Common Service be introduced, in the terms of which each 
of these values can express itself independently, and the 
difficulty disappears in an instant. " My loaves are worth 
ten cents each," says the baker. " My hat is worth ten 
dollars," says the hatter. Their saying so does not indeed 
make it so ; that matter is a preliminary ; but each has 



o80 piMNC ipi.es ov political economy. 

come to that approximato {'oiiclusion by a relatively easy 
comparison of two Services, liis own and another i-onnnon 
one ; and if the loaves will duly bring ten cents and the 
hat ten dollars, the terms of their own exchange are one 
hundi-ed for one, and there is no need of jiarleying. So of 
the rest; so of everything that is ever bought and sold. 
Money becomes by common consent a Measure of them ; 
because it measures tliem, it makes the interchange of 
them a very facile matter; because it measures them, it 
easily becomes a medium between them ; and, accordingly, 
because the money rendered is itself a Service, it is a nat- 
ural and universal measure of all other Services. 

MONKY IS A CUKUKNT AND LEOAL ]\[KASITRK OK SER- 
VICES. With this iinal delinition of '' Abmey " the writer 
is more than willing to take all the risks. It was new 
when propounded many yeai'S ago in one of the editions 
of his earlier book. All subsequent testings of it in form 
and substance have but contirmed the original confidence 
in it. The word " legal " in this definition is not alwa3's 
to be pressed to its utmost signification, but denotes any- 
thing sanctioned by law or usage equivalent to laiv. The 
other words are to be taken in their full and technical 
meaning. It is believed that, while this definition is short 
and sim[)le, it just covers the whole ground and no more. 
It is not enouo'h that a certain valuable be "legal" as 
Money ; it must also be '■' current " in order to be a true 
money. In the United States between 1862 and 1879, to 
take an example, gold coins, though legal tender all the 
time for all debts public and private, were not *•' current " 
in tlie full sense of that term, and hence were not the 
Money of the country. Till the last-mentioned date, the 
gold dollar of 254 grains standard fine was required by law 
to pay customs-taxes witli and tlu> interest on the public 
debt, and was used to a small extent in a few branches of 



MONEY. 381 

private business, and was not otherwise in the hands of 
the people. These dollars, accordingly, were not strictly 
money, but bore a premium over the " current " money 
of the country. To be Money, then, a Valuable must be 
recognized as money by law or custom as strong as law, 
and also circulate among all classes of the people as a 
medium in their exchanges. 

But we are bound to observe that Money becomes a 
medium in men's exchanges, because it first became a 
measure in their Services. Some economists think that 
these two functions are separate, and are of equal rank ; 
but it is easy to see that one only is original, and that the 
other is derived from that. Even Aristotle perceived that 
Money is a Measure, inasmuch as he defined property " any- 
thing that can he measured hy money. ''^ We may be pretty 
sure, in opposition to Professor Jevons, in his Money and 
the Mechanism of Exchange at page 13, who thinks there 
are four characteristics of Money, that Money as such has 
but one primary characteristic difference from other forms 
of Value, namely, this OTeasMre-quality,this standard-qnoXitj, 
this publicly recognized function as a common measure to 
which all other valuables are constantly referred. This 
additional attribute put upon a money-valuable by law or 
custom is not what makes it valuable, since an ounce of 
uncoined gold standard fine is worth within a very small 
fraction as much as an ounce of gold coins, but it makes the 
money a far more convenient instrument to purchase with, 
inasmuch as money, having now the attribute of making all 
other valuables easily commensurable with itself, becomes 
at once something which everybody is ready to receive, 
because everybody knows in general what its power will 
be to purchase all other things. In other words. Money 
becomes a medium in exchanges just because it has already 
become a measure of Services in general ; and there are 



881! ntiNciiM.Ks OK I'lM.iricAi. kconomy. 

not riMisi'tiuiMith (WO i>rinu> runnions (>!' Moi\o\. still loss 
t'luir, but ou\\ owe. This viow soi-ins to sim[)lirv tho w liolo 
subjoi't >>!' MiMioN vorv imu'h ; and wo may hv sino that it 
will i>o t'ouiul to bo soiontitioally ooiroot, ami that wo shall 
lind niaiiN moans of tostino" its aooui'aoy as w f i;'i> on. 

To maintain, as wo do, that '* Monoy is a nu>asJiro of 
Sovvioos," is mnoh bottov than \o say, in lonnoolion with 
man\ ooonomists, that '* Monoy is a Moasnii' o{ \'aliu>." 
Tluit phvaso is objootiiuiablo booauso N'aliio is always ivla- 
tivo to two Sorvioos oxohano-cd for oaoh (^thor : and to say 
that monoy is ;i moasuii^ o( that ri'/atioN is noiihor so simple 
nor so ultimato as to say that it is a nu'asuro of oai'h of tlu> 
Sorvioos (Mitorino- Into that rolation. Tho St>rvioos may bo 
oimooivinl o( and s[iokon of soparati" fiom tho \'alno iido 
wliioh thoy moroo, althoiioh thov eomo into oxistonoo 
solely fi^i" tbo sako of that rosultant A'aluo, ami it is more 
exaet and final to |>ro|)onntl that Mono\, itsidf a Sor\ i^'o, is 
a moasuii> oi all other Serviees eonsidered as oonstitmMit 
elements of the X'alues into wbiob they fall. ^^^> are not 
without stnui*;- lu>pes, aiH'ordino'ly, that oompotont t>ot)uo- 
mists will oouoimIo, that bore is a radioal improvi'uuMit in 
the nomiMU'lature of our Seienoe. 

In the plaee of onr expressii>n anil dolinition, ami tho 
foreg'oint^- explanation oonsoipuMit upon its use. President 
Walker in his >b)nev, [lagos "280 ft s,'(j., prefers the 
niatlunuatieal and exeellent phrase,"^//*' conuiioit litiionil- 
tidtor in e.irhant/e " ; Professor l>onamy Triee. in his 
Praetieal Politieal Eeononiy, pagv 'U>;>, shows his fmal- 
ness for tbo fornuda (and it is a g-ood one\ " ///(■ ^>(»/ of 
e.r-'han(/t' ": and Henry Ounniuo' Maoh>t>il, in his Kle- 
ments o\' l>ankinuf» piig«? 17, insists witb mui-h less reason, 
that " Mo>it\// is the reprcxentativj:' of Ih/>t." Ho says: 
"The qnantity of money in any country represents the 
amount oi Debt whioh there wiuild Ik- if thori- was no 



MONEY. 383 

money ; and consequently when there is no debt there 
can be no nioney." The unfortunate use by some coun- 
tries of a paper money, which is indeed a form of debt, 
gives some plausibility to the notion that Money is a 
representative of Debt ; and perhaps the fact that Money 
is often used to pay debts previously contracted, and that 
debts arc almost always contracted in the terms of Money, 
may give some additional plausibility to tliis view ; but 
as Macleod himself goes on to say that " no substance 
possesses so many advantages as a metal for money," and 
that " all civilized nations therefore have agreed to adopt 
a metal as money, and of metals, gold, silver, and copper 
have been chiefly used," we do not see how he can logically 
hold that a gold dollar, or a gold sovereign, wtiose value is 
as substantive and independent as that of any Valuable in 
the world can be, becomes through coinage and circulation 
" a representative of Debt." Instead of saying as he does, 
" where there is no debt there can be no money," it may be 
confidently asserted on the other hand, where all transac- 
tions are settled at once in solid money there can be no debt. 

7. Having thus looked into the nature of Money, and 
seen what is its one essential characteristic, and its one 
obvious and universal function as the result of that, it 
will help us now in our further discussion, to examine 
some of the material commodities that have served as 
Money at different times and places. 

Cattle appear to have been the earliest money of which 
there remains any record. Homer, near the middle of the 
sixth book of the Iliad, indicates in the following lines 
that oxen were an incipient money in the Heroic age : — 

" Then did the son of Saturn take away 
The judging mind of Glaucus, when he gave 
His arms of gold away for arms of brass 
Worn by Tydides Diomed, — the worth 
Of fivescore oxen for the worth of nine." 



384 PRINCIPLES OF POLITICAL ECONOMY. 

We cannot certainly infer, when it is said in Genesis that 
"^ Abraham departed out of Egypt very rich in cattle and 
silver and gold," that any of these were anything more 
than articles of valuable merchandise ; but on the other 
hand it is certain from the Latin name of Money, Pecuniae 
which is derived from the root pecus, which means " cattle,^'' 
that Cattle were the Money of the early Romans ; and 
Pliny writes expressly that King Servius Tullius stamped 
the first bronze money of Rome with the image of cattle^ 
undoubtedl}^ indicating by that some equivalence in cur- 
rent value between the two. At any rate cattle have 
been used as Money among pastoral peoples very widely 
in place and in time, and are still so used in various parts 
of Africa. 

In the region of the Euphrates and Tigris the precious 
metals became money in very remote antiquity ; for the 
art of coining, and all other arts, came thence westward 
to the Greek cities of Asia Minor, and to Greece itself, 
and we learn that Pheidon, King of Argos, coined silver 
money on a scale derived from the East in 869 B.C. ; and 
a better proof still is the fact that burnt clay tablets are 
found in the Royal Library at Nineveh, discovered by 
Layard, which are really credit-money, notes issued by the 
Government, and made redeemable in gold and silver 
money on presentation at the king's treasury. Tablets of 
this character are extant bearing date as earl}^ as 625 B.C. 
But the gold and silver money must have been circulating 
a long time in their own right as valuables, before such 
a credit-money, such a promise-money, as those tablets are, 
t'ould have originated in connection with them. Abra- 
ham, who himself migrated from " Ur of the Chaldees " 
about 2000 years B.C., not long after reaching the Medi- 
terranean, " weighed unto Ephron the silver which he had 
named in the audience of the sons of Heth, four hundred 



MONEY. 385 

shekels of silver, current money with the merchant." 
This is expressly said to be " money " and " current 
money." Perhaps it was coined money. At any rate, it 
was cut and piece money. It was indeed weighed out, 
and not counted out. This is still the more accurate and 
speedy manner, when the facilities for the weighing are 
present. The Bank of England at this day weighs, and 
not counts, the coins received and paid out. The Romans 
first coined silver money in 269 B.C., and gold money in 
207 B.C., and gold coins were stamped in Greece about 
the time of Alexander the Great, say 333 B.C. 

Other metals than those called precious were also early 
used as money. Long before Pheidon's silver coinage in 
Greece, copper skewers were used as money in that coun- 
try, of which six made up a drachm^ which was afterwards 
both a coin and a unit of weight, the coin being worth 
about 17 cents of our money, and the weight being about 
66 grains avoirdupois. The word drachm is derived from 
Spdyfia, a handful; and the sixth part of it, called an obol, 
from the Greek word meaning a spit, became also both a 
coin and a weight, all which makes it evident that these 
were used in connection with roasting meat, and that one 
skewer or obol was originally a unit both of value and of 
weight. In Adam Smith's day, in certain districts in Scot- 
land, nails were still used as small money, which is a forci- 
ble reminder of these old Greek skewers. Iron became 
money in Sparta; money of lead was known to the an- 
cients, and is still current in the Burman empire ; the 
ea,rliest Roman coins were of copper, which were cast 
rather than stamped, for no die would have sufficed for 
pieces so large and heavy, and the denarius was the unit 
divided into ten asses, the denarius being nearly the equiv- 
alent of the Greek drachma whether of copper or silver, 
because the Romans reckoned from the first the ratio of 



nsd 



I'lMNCin.lCM tM' l't»l,l ncAl, ir,»'ONt»M\ 



(M»|>|HM In NllvtM'll.s 'JitO ; 1 , liimi/.c \H )| im\hut» nl ('ii|i|»ol' 
and (ill, ami Iiiii-im mI (M)|i|mM' iiikI /inr, utitl (-ii|i|mm coin.s 
Willi liolli lluviiMuliui \ I m'(>.M UMoil l«'i I 111' |>Mr|u>H»M>r liitnl 
^llln^ (lit> iMi|i|i(M, ll lioill^' II ^'(MUM!ll law III iit(i|iilri tliiil ii 
mi\(iii'o III' (\V(» Ih liiinltM' lliiiii (MIIhm \u\\o Ihumi mmv roiii 
iiinii III iiiii'iiMil iiiiil iiinili'iii Iiimom; SlClllllll, Ivuiiuin, lllltl 
old IIi'iIImIi i'iiimm oI tin iilmio iir<' Iviiowii In li:i\i< Ihmmi 
.slnii'K; 1)11(1 lliM'oilotilM iMiiKoM llio mIiiIimiiimiI IIiiiI llli' 
I.NilmiiMor Amui Miiini wiMi' (lu> lil.'il In liiiiKi* ii roilliimi i>l" 
t'h'i'd'inii, w luoli. iiH MoiMi> t'liiim, wiim ii mi\lMn> ol' ^olij mid 

MllviM', lUul of Wilicil IIIUMOIll MpOcilUl^MM lU'C Mlill l^vifdillg, 

( 'o\\ I'V .>^A(7/^• mo Ml ill iimmI hi llio I'IumI liidioM, mid iiImo 
III Ali'iri) III i\\o pliioo td .siiiiill ooiiis, mid iiiivit MoiiKdiiiios 
lioiMi iiii|>oi'lod iiilo l<'.iiglmid Iron) liidiii to lio o\|ioi'lod in 
Inidi' (o llio const ol' A Iricii, Ihmii^ lOiKoiiod in Hoii^iil ill 
iilioni ;»",10(> (o II niImm rii|uM\ wliiidi ih iilunit -lit ol' our 
coiiIm. riio Now l'.n"l.iiid liidiiiiiM iil-io iiMod ItoinJH or 
mIioIIm nl |uM 1 w ink Ir-i (wliilr) niid ol cliiin.i ( Mili'lv ), ol 
wlinli I'viiO niiido up ii lioll ol iramfnini, n>^ lln'v iiilliwi i(, 
(lu« lilmdv lioin^ roiiiili'd worlli I wiriMis iniirli in I lio w liilo ; 
mid lli(< I'ln^'liMli I'oloiiisiM iHM<o|ilod (lio wiiin|»nni in llioir 
osrIiaiii'OM Willi llio InduiiiM, ro^iu'diii^" ti Nlrin^^' ol wliilo us 
iM|iiiil to livi* mIiiIIiiiu's. mid ii Mliini»" id' hliioK lo Ion nliiU 
line's, mid iil'ltn'wm'ds inado il l(>u',iil linidin- unioii^' llioni- 
NolvoM lor Miiiall MiniM, ami ovoii ooniiloi loilod il, ( 'iikivs ol 
tfUt \\i\\o pii.sMod DM )))oiiov ill I mini, mid oImimv lnM«< ; mid i(. 
\H .Siiid. I lull 111 llio I'Toiit miiinul fail' ill Novgorod, in 
Kussiil, llio |iiiri' ol loa liaa IIimI |o Iio iIoIimiiiiiiimI holoro 
ll)o piiooH id' ollior llniiv.;.'! omi l»o Molllod upon, niiiro lliiil is 
!i Kind ol" slmidatd of N'lilnos in llitil ^I'Oiil niml S,t/f luis 
lioon riirioni inoiio\' m A lt\ .'isiniii ; lU^if-tish in Itolaml mid 
Nowfoiindlmid ; mid ht^avt^t^H^'inn in Now Nolliorlanda. Now 
Mii^'lmid, and llio woMltM'ii parl-i of Aniorii'ii, 

\N'o i\o nol liiMo hv 111 all lo ^ivo il full UmI of llio lliiii^M 



MONI'iV. 



'Ml 



Um,(/ lU'c, l((ir»wii (-0 liav<i bc.oii \m-A in (Jx- r;iuly mI,i(,I,(!H of 
HO(;i<',l,y ;i,M iiioiMiy ; iUid l,li(;i'(; woiiM Ic, no ('loinid lor iiilJ'- 
|)riii<; ill iuiy liiil,, liow<;v<'i' hui'f, ;i,imI v!uii-,<I, wln'.ii wf. n;- 
llicinliij liovv gTi'/ll/l/ ill III'; iK'.f.'l ol iioiric lilicji I'oi in ol viilil'', 
j^(iri(iiiiJi/,<'.'l ill order l,li;i,l, (!X';liiui|';(',(( iiiiiy jn'ow l,o ;i,iiy con 
HJdiiriililo \\m: ;umI vi|';or. Two |»oifil/H only need now l,o Itc, 
nolf.d, ( I ) l,li;i,l, l,lii-, l,c,iidc,ni',y every wIk'.i'; Ii;i,:i Ijee.n nooin;!' 
or l;i,(,er l,o eoiiir; l,o I, lie Miel,ii,lil UH l-lie, hciil, I'oriii ol irio;ie,y, 
;i,iid ;uiioiif.( (,lie inel/iiJii l,o re.iudi f/old ;uid nilvrJUi iJie only 
iill,iin;i,l,el y ii;i,IJHr;i,e,l,ory ni;i,l,eiiii,li! lor iVloney ; ;i.iid C'l) l,li;i,l, 
no iiii',l<iMiee 1i;i,m ever been found in iJie whole Hlyrei,e,|i of 
in((iiiry over ;i,ll I, lie e.iirfli, of ii,n ylJiinir lieeoinin;^ ii, Mone.y 
lJi;ii li;i:d iiol, l»ee,n |>re, vioiijil y ii, Vii I n;d»l<-,. Wf, iini'lil, lie 
perlec/l-ly mire of l/iiin l)e,l'oreli;i,iid, wiUioiil/ luiy iie,;u'eJi ii,(, ;iJI 
lUiion^ Uie nioiie,yi( of |iriinil,ive l/itiieM imd HiWiU'.n of eivili 
/,ii,(/ioii, [)e,eii,nii'',, from I, lie vi'/rfj nal/iint of llu>, naiw nolJiin!' 
eoiild <;ve,r nerve, I, Ik; |»iii|(0",e of iVIoiM;y exe,e,j)l, wli;i,l, wiui 
iiJreii,dy n vidiiii,Me, Lo nitij<e, Uie (;(nn|)iM'iHoii wil>li, nol/liin^ 
eonid ever jioHjiilily Horvc- m ih ine.iiHure of Hervi(5<'-H <!xe,e|)j, 
)(. nei'vie.e. 1 1, li;i,ii lie, vend l,iirie,(i |>eeii r,|;unied, (,|i;i,|, ;i,c,(,ii;i,l 
exe,(;|)l,ionH fo fliin lii,w liiive, |»e,en liiHt,orieii,lly diii';ove,red, 
l)iil, when flie ii,lle{n;d exe,ep(,ioiiii liiive, ()e,en eloH(;ly Me,rii(,I- 
ni/,e,d l.liry li;i,ve, heeii found l,o he ;i,|)|);i,re,ii I, only. I o Uij'.e 
(,Wo or iJiree of ilie irio,'il, phuiiiihle, exii,ni))leil : Um; OiuUiii, 
^dniiMiii hitd ;i, l:iiid of |e,;i,(,he,r money, wliieJi ori|diiiilly en 
cloned hil,;i of I, he |ire<;ioiiii nif;l,;i,hi, ;i,iid e,ii'c,id;i,l,e,(| in viil.ni; 
of fliejii, l.hoiij'h fhe.y !i,fl,erw!i/rdH eiUiM? l,o eire(il(i,fe iiH hil,Hof 
h',;i,l,lie,r oiily,;i,;i e.fiiinferc, ii,iid |»|e,dj''eM, In (i, wii.y l,li;i,l/ will he, 
ex (jhuii'd l;i,l,ei-. Ae(;ordiii|' (,o l,h<; Ve,iM;l,i;ui l,r;i,ve,l ler, I'olo, 
(!|iiii!i, h;i,d ill III'; Mill leenl.h <;(;iil,iiry !i, money imnle ol I, he, 
h;i,rl'. of I, he iiinlh(;rry l,re,e,, e,iil, info round |)i(;e,eH !i,iid Hl/ii,mjie,d 
willi flie iiiiiik; of l,li(! HOVOrelj^oi, wliieji tnone,y i(, w(iH d<',!i,l,li 
l,o e,onnl,e,rh'il, or l,o refiiiie (,o l,;i,l<e, in :i,iiy |»;i,rl, ol I, he, em 
|»ire. If we, [iii,r| I, he, whole hiiilory of Uiiii moii<;y, i I, woilhl 



388 PRlKCirLES OF POLITICAL ECONOMY. 

surely ally itself either with the other commodity-moneys 
now being treated, or with the modern credit-moneys made 
legal tender to be treated hereafter. It is just as certain 
as anything can be, that these circles of stamped bark did 
not start out as money in their own right. The French 
writer, Montesquieu, asserted that there was in use in the 
last century among the people of the coast of Africa, what 
he called "an ideal money," "a sign of value without 
money," the unit of which was called a Jiiacoute, which 
was subdivided in ideal tenths, called pieces. This state- 
ment was startling, as implying a denomination without 
the thing denominated, as implying a standard of value 
which had no basis in a valuable thing. It was afterwards 
discovered, however, that this money of account had its 
origin, just as we should suppose it nuist have had, in an 
actual macoufe, a piece of stuff, a fabric, which they had 
used first as a commodity-money, and afterwards its name 
as a money of account. A valuable thing may become 
money, and then its name may become a denomination of 
value, and still later a bit of leather or a bit of paper may 
be called by the same name, and in a certain sense take the 
place of the same thing. All this will be as clear as day 
pretty soon. 

8. Contrary to what has often been affirmed by Econo- 
mists, the real measure of Services is the service itself, the 
thing-^oW-Ax and not the denomination-^oWnY. The denom- 
inations are used in bargainings and calcuhitions as repre- 
sentatives of the money itself, and thus indeed in a second- 
ary sense serve as measures; but the subtle connection 
between the thing and its name, between money and its 
denominations, and the differences betAveen the two, need 
to be clearly unfolded, because most of the current falla- 
cies about money take their rise just at this point. An 
illustration will best serve us here. The original measure 



MONEY. 389 

of Scrvicfjs in Franco and Knfr]n)\<] and Scotland was the 
[lonaii weij^ht of silvor. No coin of tljat weight was ever 
Htruck ; but the pound of silver was cut into 240 coins 
called pence. Twelve of these pence were called a Holidun 
or shilling. Thus, as applied to silver, the symbols lb. and 
X denoted equivalent weights, the former of uncoined 
metal, the latter of metal coined. But in. course of time, 
more " pence " than 240, and at last in Elizabeth's reign 
744 " pence were coined out of a lb. of silver." Yet all the 
while 240 of these pence were called a £. £ and lb., both 
a contraction of the J^atin lihrri, were no longer equivalent. 
The lb. of weight continued stable; the X of money had 
dwindled to less than one-third. Yet the name pound 
continued to attach to 240 pence, although the pence 
embodied a less and less quantity of silver. Each actual 
penny had less silver in it, and tliough it was still called a 
penny as before, the denomination^ though spelled and 
sounded as before, represented less silver, and therefore 
less vahie^ than before. The denominations, then, always 
follow the fortunes of the coins, whose names they are, to 
the frequent loss and sliame of the unthinking, who sup- 
pose the same name must represent the same tliiwj. Un- 
fortunately it does not. 

I'ake another illustration. In 1884 the ci'old earde of 
the United States was reduced in weight from 270 to 258 
grains troy, and the alloy increased from one part in 12 to 
one part in 10. These changes took out more than 6 parts 
of gold from every 100 parts in all the gold coins of the 
country. Yet all these coins bore the same names as 
before. The things denominated changed, but the denom- 
inations changed not. Other things remaining equal, the 
coins lost six 'per centtMn of their purchasing-power, or in 
other words, general prices rose in that proportion ; the 
measure became so much smaller; and the names, eagle^ 



390 PRINCIPLES OF POLITICAL ECONOMY. 

dollar^ outwardly unchanged, varied simultaneously and 
equally with the change in the coins. 

Also, coins are liable to change in their function as a 
measure of general Services from unavoidable changes in 
the general purchasing-power of the precious metals them- 
selves. If for any reason an ounce of gold will buy less 
of general Services than formerly, of course the coins cut 
from that gold will buy less than formerly ; and this 
change in the measure is followed instantly and inevitably 
by a corresponding change in the meaning, though not in 
the spelling, of the denomination. Not so with all other 
tables of denominations. These have a basis independent 
of the things which they help to measure. The French 
metre., for example, is not variable by the lengths or 
breadths or heights of the things it measures, but is an 
invariable unit of length the world over; so is one of 
Troughton's inches ; but this feature does not hold at all 
of the denominations of Money ; because sovereigns^ dollars, 
marks, francs, are denominations of Value, which is itself 
a variable relation. Such denominations, consequently, 
are not an independent standard to Mdiich values them- 
selves can be referred, as lengths are referred tp metres 
and inches, but vary with the varying purchasing-power 
of the coins themselves. The '■'■dollar,''' as a denomination, 
means more or less, just according as the "^ Dollar," as a 
coin, buys, that is, measures, more or less. 

Still, essential as is the point now made to any just 
understanding of the subject of Money, it is vastly impor- 
tant for all the interests of Exchange that the accepted 
measure of Services be as little liable to fluctuations as 
possible, especially in all cases in which lapse of time is 
involved before the exchange is fully consummated. An 
inflexible standard there cannot be from the very nature 
of the measuring, but also from the very nature of all 



MONEY. 391 

measuring, the money-standard should be and should be 
kept as nearly inflexible as it possibly can be. For the 
same reason in kind, only multiplied a thousand-fold in 
force, that the bushel-measure should be of the same 
capacity in sowing-time and in harvest-time, to sell and 
buy by, always a bushel, no more and no less ; and the 
yard-stick an inflexible measure of length, always 36 of 
Troughton's inches, no more and no less ; so, as far as it is 
possible in the nature of Values, ought the current meas- 
ure of Services, and hence its denominations, to represent, 
year in and year out, a uniform degree of purchasing- 
power. 

9. This brings us logically to the historical fact, that, 
no matter what measure of services any people may have 
adopted in their primitive times, there has always been a 
steady force at work tending to displace these in favor of 
gold and silver. This has become the universal result the 
world over among all advanced peoples. Governor Bradford 
in his History of Plymouth Colony gives a quaint account 
of the origin of money among the Pilgrims, and in connec- 
tion with that of the fee-simple in lands : " The Pilgrims 
hegan now highly to prize corn as more precious than silver, 
and those that had some to spare hegan to trade one with an- 
other for small things, hy the quart bottle and peck ; for 
money they had none, and if any had, corn was preferred 
before it. That they might, therefore, increase their tillage 
to better advantage, they made suit to the governor to have 
some portio7i of land given them, for continuance and not by 
yearly lot, for by that means that lohich the more industrious 
had brought into good culture (by such pains^ one year came 
to leave it the next and often another might enjoy it ; so as 
the dressing of their lands were the more sleighted over and 
to less profit; which, being well considered, their request 
was granted^ 



892 PRINCIPLES OP POLITICAL ECONOMY. 

The neighboring Colony of Massachusetts, settled about 
ten years later, used rmllets for small change, reckoning 
them at a farthing apiece, and made them legal tender lor 
debts of less than one shilling; for larger exchanges Wam- 
pum and Beaver-skins were long used ; but tlie stead}' 
force just spoken of induced Massachusetts in 1G52 to 
supplant these with a silver coinage of her own, called the 
Pine-tree shillings and sixpences and threepences and two- 
pences. This mint existed (sometimes idle) for over 30 
years, but all the pieces coined bore the dates of 1652 or 
1662. In 1091, the two Colonies were forced into one 
government through a new charter gi-anted by William 
and Mary ; and after lengthened trials of inferior moneys, 
not needful to be described now, Massachusetts deter- 
mined in 1749 to have no other than silver money circiUate 
in the Colony, and became thereafter till the Revolution 
the so-called "Silver ('olony," and business rapidly and 
steadily revived and cnlaigiMl in consequence of the 
change, and in contrast with the rest of New England. 

Gold and silver, thus ever urging their way in to take 
the place of tentative and transient standards, and ever 
coming back again to stay if displaced for a time by 
cheaper and changeable moneys, have never been any- 
where of ecjual value, weight for weight. An ounce of 
gold has always been moi'c valuable than an ounce of sil- 
ver. Probably in the Euphrates country where coinage 
began, and certainly in Asia Minor deriving thence its 
weights and measures, gold was strictly the standard with 
silver as subsidiary to tliat ; in Greece, when Philip's vic- 
tories established a double standard there, gold was reck- 
oned relatively to silver as 1:12^; in the Roman world, 
where silver had been the standard after 217 B.C., Augustus 
Caesar legalized gold as a co-standard in the ratio of 1 : 12 ; 
in 1717 a double standard was established in Great Britain, 



MONEY. 393 

gold being rated in the coinage as 1 : 15| of silver, but in 
1816 by a law still in force, gold was made the sole stand- 
ard for the United Kingdom, the legal use of silver being 
limited to 40s. in any one payment ; in France the legal 
relation of gold to silver was fixed in 1808 as 1 : 15|, and so 
continued till 1876; in the United States the ratio first 
established, in accordance with the recommendation of 
Alexander Hamilton as Secretary of the Treasury, was 
1 : 15, but in 1834 this was changed to the relation of 
1:15.98, and so it remains to this day; in 1871, the new 
German Empire adopted the sole gold standard, and lim- 
ited silver to the amount of 20 marks in any one forced 
payment, still allowing the old silver thaler to circulate at 
the rate of three marks to a thaler; and since 1875, the 
Scandinavian Union permits gold alone to be coined for 
private persons, and limits the debt-paying power of silver 
to 20 crowns. A crown is 26.78, and a mark 23.82, of 
our standard cents. 

Moreover, the relative value of gold in silver never con- 
tinues the same for any great length of time, even after 
the law has sought to ascertain and fix it. Indeed, any law 
fixing the ratio between the two has very little, if any, 
effect towards maintaining the ratio. Demand and Supply 
determine the value of the precious metals each in each 
at any one time as absolutely as they decree the value of 
Hindoo rice in silver. France managed to maintain her 
legal ratio at 1 : 15i- for 73 years, because all the conditions 
were on the whole favorable ; but when the Germans threw 
a portion of their silver on the world's market in hopes to 
reach the single gold standard, and the mines of Nevada 
poured forth on the same market their millions of silver, 
the ratio could no longer stand, the right of private indi- 
viduals to have silver coined for them was taken away in 
behalf of the government, and only the five-franc silver 



394 PRINCIPLES OF POLITICAL ECONOMY. 

pieces continued to be legal-tender to all amounts, the 
other silver coins becoming then (1876) only legal to paj^ 
debts to the amount of fifty francs. A franc is 19.29 of 
our standard cents. 

And this brings us to notice what are called subsidiary 
coins. France, England, Germany, and the United States 
have debased their smaller silver coins in weight, so that 
the nominal value of these coins is from 1 to lb (fo above 
their bullion value. For example, two halves, four quarters, 
ten dimes, of our silver since 1875 weigh 385.8 grains, 
which is also the exact weight of the French five-franc piece, 
while our standard silver dollar weighs 41 2i grains, both 
^ fine, so that our " subsidiary " silver is debased in weight 
6.48%. There are three advantages in thus treating the 
smaller silver : (1) there is so much clear profit to the 
Government minting them, thus lessening taxation ; (2) a 
security to the peoples that they shall not lose their con- 
venient small change by export to neighboring countries ; 
and (3) this scheme allows a very considerable rise in the 
market value of silver without tending to throw the sub- 
sidiaries out of circulation. As these are never legal-tender 
except to very small amounts in domestic trade, there are 
no serious objections to their use in limited quantities. 
The English can pay debts in their silver to the amount of 
£2, and we in ours to the extent of $5. Coins of copper 
and of other inferior metals are also subsidiary in princi- 
ple and motive. Our 5-cent and 3-cent nickel pieces are 
75 parts copper and 25 parts nickel, and the 1-cent piece is 
95 parts copper and 5 parts tin-zinc ; and debts of 4 cents 
can be paid in 1-cent pieces, of 60 cents in 3-cent pieces, 
and of 100 cents in 5-cent pieces. 

10. The steady experience of civilized men for two mil- 
leniums and a half seems to demonstrate, that gold and 
silver constitute the be«t Monev : and we must now inves- 



MONEY. 395 

tigate the reasons, one by one, uihy they are the best money. 
The reasons appear to be three. Of these the first is by 
much the most important. 

(1) The first and main reason why gold and silver 
make the best money is to be found in their comparatively 
steady general Value. Since Money is a Measure of all 
other valuables, its success as a measure must depend on 
its own steadiness of value, and gold and silver meet this 
test better than anything else. Money is a valuable, and 
not in any sense a representative of value ; except as to 
the subsidiaries, a coin does not owe its value at all to the 
stamp impressed upon it or to the law authorizing it, since 
the metal in it is worth as much out of the coinage as in 
it ; coin-values arise under the same conditions as all other 
values, and are variable by any change in any one of the 
four elements which alone can vary the value of anything ; 
and it would seem that nothing more is needed in order 
to remove the last vestiges of the dark cloud which has so 
long overhung this subject of Money, than to familiarize 
ourselves first of all, as we have already done, with the 
true doctrine of Value in general, and then to hold fast 
the truth exemplified on every hand, that the value of 
Money is just like every other value. Let us examine 
then, first, why the value of gold and silver is so steady. 

(a) On account of the comparatively steady Demand for 
these metals. Gold and silver are wanted for two general 
purposes : first, to be used as money, and second, to be used 
in the arts ; and the usual estimate is, that about | of the 
aggregate quantity in the world is in the form of money, 
and the other | in the form of plate and utensils and orna- 
ments. Now, so far as the element of Desire controls 
Value, the purpose for which any article is desired is a 
matter of indifference. The aggregate desire for it for all 
purposes, accompanied with the offer of something with 



396 PKINCIPLES OF POLITICAL ECONOMY. 

which to buy it, constitutes the Demand ; and the more 
universal the desire, no matter for what use, the steadier 
the Demand and so far forth the steadier the Value. It is 
a point still too little noticed, that the combined demand for 
the precious metals for all uses is what helps determine 
their general value, and not the demand for them as coin 
alone ; just as the value of barley is regulated partly by 
the demand for it for food, and partly by the demand for it 
for malting purposes. Hence an ounce of bullion of the 
standard fineness destined for the smelting-pot of the artisan 
is worth within a very trifle as much as an ounce of coined 
money. 

For example, by the law of the Bank of England an 
ounce of standard gold ({-h fine) is coined into £S 17s. 
lO^^d., and the Bank is obliged to buy all bullion and foreign 
coins of the standard fineness offered to it at <£3 17s. 9d. 
per ounce, — a difference of only three half-pennies. Now, 
gold and silver are so indispensable in the form of money, 
so beautiful in the form of ornaments, so well adapted to 
serve the purposes of luxury and love of distinction, and 
so really useful in the arts, that the Demand for them is 
constant and well-nigh universal ; and should there be in 
the progress of civilization a lessened demand for them for 
purposes of personal ornamentation and luxury, and a less 
quantity be required for coins on account of the multiplied 
use of cheques and other credit-forms, as seems likely in 
both cases, a greater quantity will doubtless be required 
for all the other uses old and new, and so, as the Demand 
in the past has been steady, and probably steadily increas- 
ing, there is every reason to expect the same course of 
things for the time to come. Moreover, it contributes to 
the steadiness in value of the gold and silver coin, that 
there is at hand at all times, in the form of plate, a reservoir 
from which a chance chasm in the coin may be replenished, 
or an extra demand for it answered. 



MONEY. 397 

(b) On account of their tolerably uniform Cost of Pro- 
duction. Not Desires only but Efforts as well determine 
Value. Supply is the correlative of Demand ; and when 
to a steady demand there answers a steady supply realized 
under conditions of pretty uniform difficulty, there will be 
as a matter of course a pretty steady Value. Nature herself, 
that is to say, God himself, has indicated in a manner not 
to be mistaken the intention, that these precious metals 
should be the Money of the nations. They are scattered 
all over the earth, and so scattered that the cost of their 
production has been on the whole pretty steady ever since 
civilization and commerce began in earnest. God is a God 
of order throughout all His works. Corresponding to the 
nature and necessities of men is the whole structure of the 
outward world. Science builds only on these predetermined 
lines of Order. Induction is only possible where original 
Resemblances run through great departments of phenom- 
ena. To be enabled to buy and sell to any considerable 
extent in order to meet their subjective wants, men must 
have an objective measure of mutual Services, and this 
measure must be a valuable steady in its purchasing-power : 
very well ; such a possible measure was all provided for 
beforehand, when the foundations of the earth were laid. 

The precious metals have always been obtained in one 
or other of two ways : by surface diggings and washings, 
and by rock-mining. Both were employed in the very 
beginnings of Civilization. There is a description in the 
book of Job (chapter xxviii) of the way in which the 
ancient mines were wrought, and of the worth of the ores : 

" Truly there is a vein for silver, 
And a place for gold, which men refine. 
Iron is obtained from earth, 
And stone is melted into copper. 
Man putteth an end to darkness; 



398 PRINCIPLES OF POLITICAL ECONOMY. 

He searcheth to the lowest depths 

For the stone of darkness and the shadow of death, 

From the place where they dwell they open a shaft. 

Forgotten by the feet 

They hang down, they swing away from man. 

The earth, out of which conieth bread, 

Is torn up underneath, as it were by fire. 

Her stones are the place of sapphires, 

And she hath clods of gold for man. 

The path thereto no bird knoweth, 

And the vulture's eye hath not seen it ; 

The fierce wild beast hath not trodden it ; 

The lion hath not passed over it. 

Man layeth his hand upon the rock ; 

He upturneth mountains from their roots; 

He cleaveth out streams in the rocks. 

And his eye seeth every precious thing ; 

He bindeth up the streams, that they trickle not, 

And bringeth hidden things to light." 

These methods and difficulties in rock-mining, thus 
poetically and beautifully delineated, have been substan- 
tially the same from that early day to the present time ; 
and, consequently, there have been but two or three 
striking changes in the general value of gold and silver 
in the commercial world during the last 500 years, at least 
changes owing to easier and larger Supply. The discovery 
of the mines of Potosi in 1545, and the large influx of 
silver into Europe from those and other American sources, 
together with the irrational stimulus thereby given to the 
working of European mines under the false impression 
not even yet wholly dissipated that Value can be clutched 
bodily in mining, so increased the stock of silver, that its 
value as measured in grain or other commodities declined 
in Europe in 70 years after 1570 to about 25% of its 
previous purehasing-power. Adam Smith expresses the 
opinion in his Wealth of Nations, that silver did not 



MONEY. 399 

perceptibly fall before 1570, nor continue to fall further 
after 1640. The discovery of gold deposits on the Pacific 
coast of the United States in 1848, and a similar discovery 
in Australia in 1851, enlarged the annual supply of gold 
for the world from $40,000,000 in 1848 (Chevalier), to an 
average of $136,000,000 for the five years ending in 1859 
(Jevons) ; and the latter writer estimated the fall of gold 
in general commodities from 1845 to 1862 at about 15%. 
But with exceptions like these, and similar ones are per- 
haps not likely to recur, the precious metals have always 
maintained and seem likely to maintain in the future a 
considerable uniformity of Value, as estimated by their 
power to purchase other valuables, so far forth as Cost of 
Production goes to determine their value. Even the great 
changes just noted in the cost of the metals issued only 
gradually in a rise of Prices, which many were able to 
f )iesee and thus to provide for, but by which many more 
were caught and brought into distress and even pauperism. 
The two classes that suffer the most under a fall in the 
Value of Money are the wages-receivers and the holders 
of long annuities and other similar obligations. 

(c) On account of their Quantity. The amount of 
gold and silver in circulation in the commercial world, to 
say nothing of the quantity so easily brought into circu- 
lation from the reservoir of plate, is so vast, that it receives 
the annual contributions from the mines much as the ocean 
receives the waters of the rivers, without sensible increase 
of its volume, and parts with the annual loss hj detrition 
and shipwreck, as the sea yields its waters to evapora- 
tion, without sensible diminution of volume. The yearly 
supply and the yearly waste are small in comparison with 
the accumulations of ages ; and, therefore, the relation of 
the whole mass to the uses of the world, and the pur- 
chasing-power of any given portion, remain comparatively 



400 PEINCIPLES OF rOLITICAL ECONOMY. 

steady. It is probable, that j)roduction at the mines might 
cease altogether for a considerable interval without very 
sensibly enhancing throughout the commercial world the 
value of gold, as it is certain, from experience, that a 
production very largely augmented only very gradually 
and after a considerable interval of time diminishes its 
value. The mass of the precious metals has been aptly 
compared with the heavy balance-wheel in mechanics, 
which preserves an equable and working condition of the 
machinery under any sudden increase of the power, and 
even when the power is for a moment withdrawn. 

Just at this point a caution is needful. Because it is 
affirmed that the great amount of the precious metals is 
a ground of their firm value, it must not be supposed that 
we are going beyond our general doctrine, and introducing 
another element, namely, Quantity, besides the four ele- 
ments, which, as Ave have so often alleged, can alone vary 
the value of any Service. Quantity, in itself, is not an 
element capable of varjdng the value of anything, but 
taken in connection with durability, it is an element of 
what might, perhaps, be called with propriety the Inertia 
of Value, and tends to keep the purchasing-power of gold 
and silver where it is. Value and Steadiness of Value are 
two distinct ideas. The present value of an ounce of gold 
is decided by four things alone, two Desires and two 
Efforts ; but other elements besides these may help deter- 
mine that that ounce of gold shall have ten years from 
now a purchasing-power approximately the same as now. 
It will depend of course in the last analysis upon the 
relation of the then Demand to the then Supply ; yet the 
vast quantity of the precious metals in existence, combined 
with their durabilit}', prevents those fluctuations in the 
Supply which are so destructive to a steady value. It is not 
with them as with the fruits and the cereals, whose value 



MONEY. 401 

varies perpetually with the seasons, and which are so 
perishable that they must be sold quick or never. Gold 
and silver are almost indestructible, and the existing mass 
is not liable to be lessened except by wear and accident, 
and in so far as the annual production from the mines 
exceeds the yearly waste there is a natural provision made 
for the natural increase of Demand to supply the wants 
of the world for money and for the arts without much 
disturbing the relation of the Demand and the Supply ; 
and so Quantity in connection with durability helps 
preserve to them a tolerably steady value from generation 
to generation. 

(d) On account of their Fluency. Gold and silver are 
in demand the world over. Having great value in com- 
paratively small bulk, they are easily transported from 
Continent to Continent ; and whenever from any cause 
they become relatively in excess in any country, and so 
lose there a portion of their previous purchasing-power, 
there is an immediate motive in profits to export them to 
other countries, in which their power in exchange is 
greater, and thus the equilibrium tends to restore itself. 
The proposition is, The value of gold and silver is kept 
pretty steady throughout the commercial world by the 
facility with which they are carried from points where 
they are relatively in excess to points where they are rela- 
tively in deficiency. In any country or place where the 
precious metals are temporarily in excess, the prices of 
general commodities as measured in them will rise of 
necessity, because the unit ot measure is smaller than it 
was ; and for the same general reason, the country tempo- 
rarily lacking in these will experience in consequence a 
fall of general prices. There is, therefore, a private gain 
in carrying these metals to those countries in which their 
power of purchase is the greatest owing to the lack of 



402 PRINCIPLES OF POLITICAL ECONOMY. 

them, because more commodities can be obtained in ex- 
change for them than at home ; and private motives here 
coincide, as indeed they generally do, with public wel- 
fare, since what the traders do in carrying gold and silver 
abroad with an eye to their own interest only, helps main- 
tain at home and abroad the steady value of these commod- 
ities. 

This law of the distribution of the precious metals by 
Commerce, and the equilibrium of their general value 
resulting therefrom, is as natural and beautiful ?s the law 
which preserves the level of the ocean, or that which bal- 
ances the bodies of the planetary system. This has come 
at length to be recognized by the nations, and the laws 
which used to forbid by heavy penalties the exportation of 
gold and silver are all swept away, and these metals are 
now free to go and do actually go wherever the}'' can 
obtain the most in exchange. It is absurd to suppose that 
their owners would carry them out of a country unless 
they were worth more abroad than at home ; and, there- 
fore, the prejudice which still exists in this country (the 
relics of itself) is a senseless prejudice. The gold is not 
given away, it is sold^ and sold for more than it will buy 
at home ; otherwise nothing in the world could start on its 
foreign travels. There is the same kind of gain in this as 
in all other exchanges of commodities, with this great inci- 
dental advantage in addition, that its general value is by 
this means kept pretty uniform throughout the commercial 
world. 

Unluckily for the darker and middle Ages, so far as 
they took their cue and thought from the Romans, the 
latter, in the teeth of the sound view of Aristotle, looked 
upon Money as something quite different from other forms 
of salable things, looked upon it in short as an end in itself, 
as something to be gained and not readily to be parted 



MONEY. 403 

with. If this were the right view of Money, as it is not, 
then the policy to spring from it might well be, — Get all 
the money possible into the country, and let as little as 
possible out! Just this came to be the policy of the 
Romans. In one of his Orations, Cicero says, '''•The Senate 
solemnly decreed both many times previously ^ and again when 
I was consul, that gold and silver ought not to he exported.'''' 
The other and the true opinion, that money is bought and 
sold like any other valuable, and that its sole peculiar func- 
tion is as a means to further sales, was indeed held and 
argued at Rome, as we learn incidentally from a passage in 
the Institutes of Justinian ; but the false though plausible 
opinion, that money is ultimate, and not mediate, is said in 
the same passage " to have prevailed " ; and accordingly 
this superficial view of money, and that it " ought not to 
he exported," constitute what may be called the Bullion 
Theory, and it is the first general theory of Sales ever 
promulgated. The Romans brought it forth, and other 
nations took it from them. It could never stand in the 
light of Reason, and still less amid the exigencies of prac- 
tical Commerce. 

It is an illustration of the continuity of human thinking 
as well in wrong as in right directions, that the second main 
theory of Sales, which has long been styled the Mercantile 
Theory, is a prolongation and expansion of the first. That 
gave an undue weight to gold and silver over other goods 
m trade, and forbade their export : this did the same thing 
too, but also tried to swell the exports of other goods 
beyond the worth of current imports, so as to get hack a 
halance in gold and silver : both alike interfered with the 
international fluency of the precious metals, to the con- 
stant detriment of all parties to the restrictions. The 
common principles of both Theories may be thus ex- 
pressed: G-old and silver are the things to get; they are 



404 PRINCIPLES OF POLITICAL ECONOMY. 

ivorth more than what they ivUl buy ; therefore let ns get all 
of these in that ice can, and let as little of them out as u'e 
can; and let us work all our trade so, that others shall have 
to give us a balance back in gold and silver. These false 
postulates and inferences wrought centuries of woe in the 
world of commerce, because all the leading nations became 
devotees simultaneously to this scheme of each shrewdly 
plundering the rest. The germs of this Mercantile Theor}'^ 
appear first in France, when Phillippe le Bel, in ordinances 
of 1303 and 1804, put his hand in as king to mend the 
movement of trade, to forbid the export of gold and silver, 
to fix the price of wheat and to forbid its export, and to 
lessen imports by prohibitions of them. " Considering that 
our enemies might profit by our provisions, and that it is 
important to leave them their merchandise, ive have ordered 
that the former should not be exported nor the latter im- 
ported.'''' The famous Colbert, who laid down many finan- 
cial maxims that are good, thought nevertheless, that he 
could so mannage the foreign trade of France that she 
should get the better of her neighbors, and embodied his 
plan in the tariff of 1664. We will let him state his plan 
in his own words : " To reduce export duties on provisions 
and manufactures of the Kingdom; to diminish import duties 
on everything ivhich is of use in inanufactures ; and to repel 
the products of foreign maiiufactilres by raising the duties.'^'' 
The principle of the INIercantile Theory was never better 
(H- briefer expressed than by Ustariz, a Spaniard, in 1740 : 
"' It is necessary rigorously to employ all the means that can 
lead us to sell to foreigners more of our productions than 
they will sell us of theirs, as that is the whole secret and the 
sole advantage of trade.'''' Too many nations knew the 
" whole secret " at the same time, and accordingly the 
"sole advantage" to any became exceedinglj^ small. Eng- 
land was as deep in the sloughs and wars a,nd losses of 
this false system as any of the rest. 



MONEY. 405 

It may be laid down as an axiom, that no country will 
ever export for the sake of buying other things those 
things which are more needful for its own welfare at 
home. So long as human nature continues what it is, 
what it always was, what it always will be, no persons in 
any nation will ever export gold and silver except to buy 
therewith other valuables then and there more important 
to them and consequently to their country. There need 
not be the slightest fear that any nation which cultivates 
its own commercial advantages under freedom will ever 
lack for a day a sufficient quantum of the precious metals ; 
because under freedom these metals will always go, and 
go in just the right proportions, to and from those coun- 
tries which produce and offer in exchange those desirable 
Services which other countries want. The greater the 
enterprise and skill, the keener the development of all 
peculiar and presently available resources, the more honor- 
able and free the commercial system, so much the surer is 
any nation whether it be a gold-bearing country or not, of 
securing all the gold and silver which it needs. This is 
so, because there will be a good market to buy in, an abun- 
dance of good and cheap goods will be there, and they who 
have gold will resort thither to buy. But such a free and 
enterprising nation will also want to buy other things 
besides gold and silver, and other things than those itself 
can make or grow to advantage, and when enough of the 
precious metals is secured for money and the arts, the 
residue will be exported, perhaps to the very countries 
from which it originally came, in payment for some prod- 
ucts which those countries have an advantage in pro- 
ducing. 

The United States, for example, is a gold- and silver- 
bearing country, and exported in the years 1850-60, both 
inclusive, $502,789,759 in coin and bullion, according to 



406 PRINOIT'IilOS OK I'OIjITICAI. E(;()N()MY. 

Uit^ (•riiciiil Kiiporl. on llu; l^'iiiiiiices, 186-); uiid (luring- the 
siune [)oii()(l iiu|)()il(!(l I'lom otJuM' (•uunliU's !|8l,27U,571 in 
coin and bnllion. Whitic; was thi! famous and rallacious 
'^balan(;u ol" tradii '' in that ease? Th(3 United Kiiin(loin, 
on th(! odicr hand, is not a jj;'ohl- and silver-piodiicin^' 
country at all, hut it is the central market ol" the; woild hu- 
the })re('ious nudals all the sami!, its ini])orls and ex])orts 
of them are innnciisti in all diriictions, because it is an 
entei'i)risin^' (utuntry vvitliin the lines of Nature in aj^n-ieul- 
ture and manuhu'tures and (Mjmmei'ce, and is not afraid to 
allow its [)eo[)le to buy and sell freely with all I he world. 
Where lies in the tcM-hnical sense the 'M)alance of tiade" 
between (ireat Hritain and the rest of the; world'/ Who 
can telly All that is kiu)wn, and all that is worth know- 
ing, is, Ihat all that trade is imnmnscly [)rontabli! to all 
tlu! })arli(!S to it wherever situated. 

Now, thei'e is always a doid)l(' a(lvant:i,!j;(' in tli(!se free 
movements (tf coin and bullion in exjtortatiou and impoila- 
tion. In the first [)laee, more and l)etter commodities are 
secured to the coinilriiis (!X|)ortinn-, wluither they be gold- 
hearinj^- or not, Ihaii the i^old <'ould lia,ve bouoh( in those 
countiies, otherwise it would not have been carried abroad, 
that b(ung tlui soh; motive that stii's it from its pi'csiMit 
haunts; iuid in the second placi', tin; bcMielit to (he coun- 
tries imporlin^' is the market for their own (^ommoditicis 
created by the j^old brought in, for we must luwer forget 
that a maiket for ludduels is products in market, is a. bene- 
lit also in naturally and easily lilling U[i a <'lia.ne(! deruuency 
in llie (piaulum of coin there, and incidentally too a bene- 
lit to the world as tending- to keep in, c(iuHibno the [)Ur- 
chasing-power of the metals everywhere. This 'ast is 
especially seen wluui n(!W and pregnant sources of sujtply 
are opened in any coinilry. 1^'or (^xarnple, in tlu^ Unitcid 
Statics about the middle of the century the stock of gold 



MONEY. 407 

was more than doubled in ten years' time ; unless by much 
the larger part of this had been carried abroad in com- 
merce, it would have inevitably depreciated the whole 
mass and disturbed the prices of everything ; but by caus- 
ing the new gold to impinge on the whole world's stock, the 
shock of the new production on the measure of Services, 
though perceptible, was reduced and deadened. The 
world's mass of tlie precious metals is comparatively torpid 
beneath the action of an accretion which would break down 
by its weight the metals of a single nation. Therefore, in 
conclusion on this topic, the Fluency of gold and silver, 
by which they pass easily in commerce to those places 
where their present value in exchange is greatest, or to 
such countries as India and China which have shown for 
centuries a wonderful power to absorb the metals of the 
West, and return as easily when the conditions are re- 
versed, or when a larger use of paper-credits releases some 
portion of the coin, tends powerfully to make their general 
value uniform throughout the world, and consequently to 
make them the best medium of Exchange and the best 
measure of Services. 

(e) On account of this Circumstance, that every general 
rise or fall in the value of gold and silver tends quickly to 
check itself. This principle, indeed, is applicable more or 
less to the value of all commodities, but owing to their 
quantity and durability and fluency pre-eminently appli- 
cable to the value of the precious metals. The check is 
double in either direction. First, let us suppose that the 
purchasing-power of an ounce of gold or silver be rising : 
then, production will be stimulated at all the mines, and 
the more stimulated as the rise is more : and this new 
and enlarged Supply will tend to check a farther rise, and 
unless the permanent Demand has been in the meantime 
intensified, to bring back the value to the old point ; more- 



Km 



ri{iN< 1 ri.r.M ov i'ni,i ricAi, i';('(tN<»M v. 



iiVi'l, wlli-li llii'in IM it I'ihr III llitt Villllr (il lllr Cdill, ii \(-,HH 
i|ilMtillly IM ii'i|iiii('il In (III \\\f liiiiiir iiiiiiiiilil, III' lillrulirHH ; 
illiil llin ili'iiiiuiil lor ^iilil U'llii'll citllHUH tlin I'JHO UuiiIm In \m 
rliiMJinl liy I 111' I'iHti ilHrlf, linciiiiHc ii IfHHulirMl (| liiui I i I y in 
licrdcd Ini iiiii|i<'\ liHi' III ri>liMi'i|i|i'||('r (if I. he, rihC 11' lillt 
(tXCtJliUl^t^H llli'ilni Ird |)\ lil(ill('\ li:i\(^ liiruiiir | k riim I irli 1 1 y 
^'^ltlU't'^ lllllli lii'luir, llii'ii III riiiii'Mi- Mil' I>i'|ii;iimI will riiii- 
lillllii ^'ri'iiii'i lllllli lii'liiii^ iiinl llic I'lHn III villllr liiii\' lut 
lllilllll 1I.I lirii 

Ami |iifil rid, iinitiit'iH mutmuliH, nl' it I'itll ill I, lid iiiiniliiiHiiipc- 

|Mi\\rl III' Llll' Cdill. 'I'llli |il'd(jl|i'l inn III llir liii'lillM is lliiM'idiy 
Mliti'Ki-liril iti llin lllilin'i, itlnl llir |i- .irlici I Sll|i|il\ IcIIiIm 
llitllintlly Id nlihitlti'i' llin Vitlllr ; itlul ll I ll(^ Hitllic itlliolllll III 
iMKiilirHM in Id jin (Idiii^ iiH linfdic, llirrc in it hI l'nllfj;'ni' (li'iilitliil 
liii iiiiilir\ wlillr llir lilll ri Hi i I ll IK'M, itiiil llilM lii'\\ I >)' iilitlii I 
llulpH mIhii to lil'ili^' JiitrU llir ulil viiliU'. All lliiM l;i ill Hit' 
iiiltuoHl dl' It Hitntd y Villllr. 

(1) Oh itrriiillil, litMll\, dl iliiM ( 'iiriiiiiMliilirr, IliitI il 
Htl'oil^ni hriiiitiiil liii Mdlltiy IH liirl ill rillirr diir {){ two 
WltyH, li\ llU'iriHiilif^ llir MlorK dt riiiii, di l>\ illl i liririisril 
I'ltjiidity of circilllttidii yA lliiil (III liiiiid. It l;i r \( crdiiiHl y 
tinl illiiilr lliill il lil'isivrr driiuilid Im iiinlioy, DHptHMilll ^' il it 
lir but {ciiiiidiiti^ , dor;i not iirrr.isiiri I \ riilill'}.';('. till' Sll|i|tly 
dl' ullrl' llin \iiliic, lull (iiil\ hilllirs round llir r\i^ilill^' 
tiiii|ir\ . ( );i('illiil liHiM III llir I >i'iiiii lid iti'r i'r:i| k uidrd li>li\il 
mIo\V(U' or It iiioi'o ntjiid riiculitlioii. I'liis Ii^ikIh itdiuinilily lo 
k('t*|» IIk' Vltlllrol' llir cA inl ill^' Htorls ot iiiolirs' Hlintdy williill 
rrtlitlli liiiiil'i. |i.' liol'illiri^ of lliis |il'llir iplr, or iiid I llr rrlirt^ 
lo it, liiifi fiiiiMrd mii^lily luiMriiiids in tlir 1 1 mind Stiilns. 
hi < H^Mnntl ( i I'itll I'm itdiiiiiiiMtiatioii, I'oi' iusliuirn, tlu« (U'y tliiil 
a llU'f^OI' vohiiiir dl Hidings WitM iirrdrd " /d iih'i'c tlir (•/•()/»«" WUH 
diHiiHtroiiH in ilH i-nHidts. 'Tlu^ liulli is, tliitt IIk* voliimn of 
MoMny ill llin Muiti^d Sliilns Wiis llirii,itlid liits lintMi nV(>r 
(Uiirn, li\ iiiuili too f^rriil, roiiMidniiiis^' iln (diiiiitrlr r, its \vt< 



MONEY. 409 

shall see by and by. The multiplymg and fructifying 
nature of Rapidity of Circulation has never been understood 
by our national financiers. When, however, enterprises 
are multiplying and Exchanges are being permanently 
increased in number and variety, then there must be a larger 
volume of money, and this larger amount is secured in the 
ways already indicated, with perhaps slight disturbances of 
value, but the temporary ebbs and flows of business should 
have no effect at all on the mass of money, but only on its 
movement, and its value consequently would scarcely be 
disturbed. 

These Six grounds appear to be satisfactory and sufficient 
to account for the superior steadiness of the value of gold 
and silver, so far as their value is determined by consid- 
erations relating to these metals themselves. We now 
proceed to the two reasons additional to this why gold and 
silver constitute the best Money. 

(2) The second general reason why gold and silver 
make the best money is found in the fact that Governments 
have little to say or do about the Value and Quantity and 
Mode of Circulation of such Money. In respect to Credit- 
Moneys, like our own Greenbacks and national Bank-Bills, 
the Government has everything to say. When we re- 
member how governments are constituted, that they are 
only a transient Committee of the citizens for special 
purposes ; of what sort of persons they commonly consist ; 
the variety of subjects they are obliged to consider during 
short periods of office ; the absence for the most part of 
expert knowledge among them ; the enormous blunders 
they have made in the past in all financial measures ; and 
that those who know the most about their action in the 
past and present in such matters have the least confidence 
in their ability to act wisely ; the better we shall see the 
strength of the grounds of this second reason. In all 



410 PRINCIPLES OF POLITICAL ECONOMY. 

essential respects money of gold and silver regulates itself. 
These metals came to be money and continue to be money 
in the main sense independent of the enactments of any 
Government. The people chose them : they choose them 
still. As we have seen, coins do not owe their value to the 
stamp of the Government, since the metal in them is worth 
within a trifle as much before coinage as after. Coinage 
publicly attests the quantity and quality of the metal in 
the coin, and that is all. Of the value of their coins govern- 
ments say nothing. They can say nothing. That depends 
on men's judgments, and not on edicts at all. No law of 
the United States can add directly an appreciable fraction 
to the value of a gold dollar. The law makes it consist of 
251- grains troy of gold y^ fine, the mint so stamps and 
attests it, and thereafter it takes its own chance as to value. 

Some Governments charge a little something for coining 
for their People, and some do not. What is charged is 
called seignorage. England coins gold for all comers at a 
seignorage of .032%, which is practically a free coinage. 
France charges for gold .216% ; and by the law of 1874, 
the United States charge nothing for coining gold. It is 
left to the People to say Jioiv much money they will have 
coined ; and, having received it back from the mint, they 
may do just what they please with it ; they may hoard it, 
they may melt it, they may sell it at home in purchase, and 
they may export it in foreign trade, at will. Now, it is a 
great gain, an immense relief, to have a Money with which 
the Government has nothing to do except to mint it; a 
money that asks no favors, needs no puffing, never deceives 
anybody, knows how to take care of itself, is always 
respectable and everywhere respected. 

(3) The last general reason why gold and silver make 
the best Money is to be found in their physical pecu- 
liarities, in accordance with which they are (a) uniform in 



MONEY. 411 

quality, (b) conveniently 'portable, (c) divisible without loss, 
(d) easily impressible, and (e) always beautiful. 

Pure gold and pure silver, no matter where they are 
mined, are exactly of the same quality all over the earth. 
Not so with iron and coal and copper. Gold is gold, and 
silver is silver. The gold mined to-day in California dif- 
fers in no essential respect from the gold used by Solomon 
in the construction of the Temple, and the silver out of 
the Nevada mines is the same thing as the silver paid by 
Abraham for the cave of Machpelah. Nature with her 
wise finger has thus stamped them for the universal money ; 
and a universal coinage, that is, coins of the same degree 
of fineness, and brought into easy numerical relations with 
each other in respect to weight, and current everywhere 
by virtue of universal confidence in them, though bearing 
the symbols preferred by the nation that mints them, is 
one of the dreams and hopes of economists, that will be 
realized in some 

" Fair future day 
Which Fate shall brightly gild." 

Gold and silver are sufficiently portable for all the pur- 
poses of modern Money. Their weight is little relatively 
to their value. A thousand dollars in gold are not indeed 
carried so easily as a Bill of Exchange or a Bank-note ; 
and expedients are easily adopted, and have been in use 
since the days of the Romans (really since the later days 
of the Assyrians), by which the transfer in place of large 
masses of coin is for the most part obviated; and these 
expedients have all been explained at length in the fore- 
going chapter on Commercial Credits. But for the ordi- 
nary exchanges for which they are designed, gold and 
silver coins are portable enough. The writer has carried 
across the ocean, incased in a glove-finger and borne in a 



412 PKINCIPJ.KS (tF roi.lTKlAL ECONOMY. 

vest-pocket, a troy jxtiiiul dl' Imi^IIsIi .soviM-cigns, avkiIIi 
about -1230, scaiL-ely conscious oi tlicir weight (Ikuij^Ii easily 
reassured of their presence by a toucli ol' the hand. Tlu! 
exjKMience ol' (hose countries, like Fi'iincc and (u'iniaiiv, 
in w Inch the iVhnicy has been anil is still mostly nictallic, 
has not pronounced it onerous on accouid. of its weight ; 
and, at any rate, it is better to accept all (he odier inuuense 
advantages of gold and silver money, together with sonic 
inconvenience as to weight, if one chooses to insist on 
that, than to atlopt substitutes every way inferior as money, 
except that they are lighter in our purses. They are un- 
fortunately ''lighter" in other res|)ects also. 

Abireovi'r, gold and silver differ from jewels and most 
other precious (hings, in (ha( (hey are diviHible without any 
loss of value into pieces of any rcipiired size. The aggre- 
gate of pieces is worth as much as the mass and the mass 
as nuuh as (he pieces. This is a great advantage in 
Money, because for the convenicuicc^ of business a consider- 
able viirieiy of coins is nnpiiicd, and (lie proper pro[)ortion 
of cai'h kind lo (he rest is a matltu- of dial, and if any 
kind be minted in excess of (lie demand nothing more is 
lecpiii't^d than to remint in other denominations, and the 
whole value is thus saved to the country in the most con- 
venient form. 

"^riten, gold and silver are easily impressil>Je by any stamp 
w hich (ht^ Oovcrnment chooses to put upon them. Indeed 
in (heir natural state they are too soft to retain long the 
impress of (he die. Accordingly for coinage ])\irposcs they 
are always alloyed with another me(al, chiefly copper, 
sinct^ by a ehemieal law whenevei' (\\'(t such metals are 
mixed togedier (he eom])ound is hardi-r (ban either of the 
(wo ingredienls. ]\b»st of the Nalions now use in their 
gold and siKcr coins ,'„ all(M. bu( lOngland s(ill adheres to 
her ancicn( ruh^ of ^., onl\ . So conijioundi'd coins ri'ccive 



MONEY. 413 

readily and lokiiii I'ur a long time witli sharp distinctness 
the legend and other devices chosen for them to bear. In 
monarchical countries the head of the reigiung sovereign 
is nsiially stamped upon the current coins; in all countries 
national emblems of some sort; quite recently some of the 
coins of the LInited States have been made to bear the 
a[)propriate legend " In God we trust " ; so tliat patriotic 
and even religious associations arc connected with the 
national Money. Although the alloys harden the coins, 
yet after long usage they will lose a part of their weight 
by abrasion, and Governments usually indicate a short 
weight, after coming to which the coins are no longer a 
legal tender for debts. Thus an English sovereign weighs 
5 pennyweights oi^i grains, containing 113^1^ grains of 
fine gold, and when it falls below 5 pennyweights 2| grains, 
it loses its legal-tender character. 

Lastly, gold and silver when coined into Money are 
objects of great heauty. This is no sliglit recommendation 
of these metals for the money of the world. They are 
clean. They arc beautiful. People like to see them, and 
to handle them, and to have them. Their perfectly circu- 
lar form, the device covering the whole piece, the milled 
and fluted edges, the patriotic emblem, whatever it be, tlie 
religious or other legend, and their bright color, are all 
elements in their beauty. The educating power over the 
young of a good coinage well kept up, aesthetically, his- 
torically, and commercially, is a matter of consequence to 
any country. A whole people handling constantly such 
money cannot fail to receive a wholesome development 
thereby. The new German coinage, for ocample, in con- 
trast with tlic old moneys of the German States, furnishes 
a good illustration of all this. The new German coins 
from highest to lowest are very l^eautiful, and liave al- 
read}'" tended and will tend moic and moie, other things 
being equal, to a true ({erman nationality. 



414 PRINCIPLES OF POLITICAL ECONOMY. 

11. Silver is much inferior to gold as a metal for 
Money, for this main reason, that it has proved itself much 
less steady in its general valve; and its value is less 
steady, because it is subject to greater changes in its Sup- 
ply and greater variations in its Demand. As an example 
touching Supply, we cite the fact, that the annual silver 
product of the world doubled in the third quarter of this 
Century, rising from an average of -140,000,000 yearly, 
1851-61, to .180,000,000 in 1875; and that Nevada alone 
yielded in 1876 as much as the whole world yielded 
twenty years before. Then, too. Demand, that is, effective 
public o[)inion, does not hold to silver as it does to gold 
for a standard of Values. The action of Eno-land in 1816, 
of the United States in 1853, of Germany in 1871, of 
Scandinavia in 1874, and of the Latin Union in 1876, in 
legally making gold the sole standard of /Services and silver 
subsidiary to that, of course affected more or less the 
Demand for silver as Money, and thus varied its value. 
We have at hand the data to demonstrate the effect of 
these two causes combined : the average price of silver in 
gold from 1833 to 1874, in the London market, which is 
the bullion market of the world, was for the 40 years just 
about 60 pence j^er ounce, never falling below 58|- and 
never rising to 63. At 60 pence per ounce (444 grains 
of pure silver, standard English silver being .925 fine) the 
ratio of gold to silver is 1 : 15.716. But between May, 
1875, and July, 1876, when both the above causes had come 
into full action, silver dropped in the London market to 
47 pence per ounce, a fall of 21%, and a ratio of gold to 
silver of 1 : 20. The price gradually rose again to about 
53 pence per ounce, and remained in that general neigh- 
borhood till 1882, between which date and 1890 the sag- 
ging process went on to the general result of 25% discount 
as compared with the old average of 60 pence in gold per 
ounce of silver. 



MONEY. 415 

These facts settle the question adversely to the fitness 
of silver to become an independent Measure of Values. 
When, however, it is designed that gold and silver shall 
circulate together in some numerical relation to each 
other as Money, it becomes needful that Government shall 
fix as well as it can, not the general value of either but 
the relative value each in each for the time being. But 
this specific value, too, goes on to regulate itself indepen- 
dently of government edicts. No matter how well the 
work is done at first by ascertaining the actual ratio in 
which they are exchanging in a free market, it will cer- 
tainly require revision from time to time. This is what is 
called Bimetallism. The reader will now perceive the fun- 
damental and ineradicable difficulty with the bimetallic 
system, which has led by bitter experience nearly all the 
European nations to abandon it. It especially becomes us 
to understand how the United States have fared in a cen- 
tury's attempt to keep in equilibrio as a conjoint and legal 
Measure of Services both gold and silver in a fixed numeri- 
cal relation. 

Alexander Hamilton as the first Secretary of the Na- 
tional Treasury, entering upon excellent preparatory work 
done both by Robert Morris and Thomas Jefferson, guided 
the action of Congress in establishing the Mint in 1792, 
and really determined the weight and fineness of the first 
federal coins and their relative value each in each, the 
silver coins being struck in 1794 and the gold ones in 
1795. The silver dollar was copied from the Spanish 
milled dollar of commerce, which contained 371.25 grains 
of pure silver, and that has been the exact content of our 
national silver dollar from that day to this. The halves 
and quarters and dimes were exactly proportioned in 
weight and fineness to their units. Hamilton supposed 
that gold was then worth in Europe 15 times as much as 



416 PRINCIPLES OF POLITICAL ECONOMY. 

silVer, and advised consequently that the gold dollar 
should contain 24.75 grains pure, and that both dollars 
should be alloyed at the English rate of y^? thus making 
the silver dollar weigh 405 grains and the gold dollar 27 
grains ; but Congress, while enacting the gold dollar just 
as the Secretary recommended, preferred to alloy the silver 
dollar by 44.75 grains instead of 33.75, thus making its 
weight 416 grains. Alloy is of no account in value. 

From the ratio of 1 : 15 fixed by the act of Congress in 
accord with Hamilton's opinion as to the relative value of 
gold in silver to be maintained in the coins, unforeseen 
and important consequences followed, since that was not 
the true ratio of their value at the time in the markets of 
the world ; an ounce of gold was worth more at that time 
than 15 ounces of silver, and, accordingly, was worth 
more, out of the coinage than in it, and Avas therefore 
exported in preference to silver in payment of foreign 
balances, especially after France had changed the relative 
legal value to 1 : 15^, which happened in 1803 ; and of 
course the gold refused to circulate here under those 
circumstances, being undervalued in the coinage, thus 
giving a neat illustration of the economical law to be 
unfolded under the next numerical heading, namely, that 
the cheaper money will always push the dearer out of the 
circulation. Not till 1834 was the attention of Congress 
so strongly drawn to this fact and consequence, as to 
secure an enactment to remedy it ; and this coinage law 
of 1834 rated gold to silver as 1 : 15.98. The weight of 
the gold dollar was at the same time reduced from 27 to 
25.8 grains, and the alloy increased from ^^ to y^^. These 
chanfjes of 1834 increased the relative legal valuation of 
gold in silver 6.53%. But this in turn Avas going too far 
in the opposite direction ; gold was not worth 1 : 15.98 in 
the bullion markets of Europe ; France was holding steady 



MONEY. 417 

her ratio of 1 : 15.50 ; and, consequently, the commercial 
current of the metals was now reversed, silver passing in 
preference to Europe to liquidate the balances of trade, 
and gold beginning to come to the United States, where 
it would buy more than 3% more silver than in Europe. 

Three years after the above changes, that is, in 1837, 
the standard of -^ fine instead of ii was applied by law to 
silver also, and this altered fineness made a change in the 
weight of the silver coins necessary, if the ratio of 1 : 15.98 
was to be maintained between the gold and silver. 
Accordingly, the weight of the silver dollar, and of two 
halves, four quarters, and so on, was reduced from 416 
grains to 412^, that is to say, less alloy was put into the 
silver coins, but the fine silver to the dollar was kept just 
as it was, namely, 371.25 grains. Since 1834 there has 
been no change in the gold dollar and its multiples, and 
since 1837 there has been no change in the silver dollar- 
piece, and the legal ratio of value between gold and silver 
in our coins is still 1 : 15.98, since the silver dollar of 1878 
and onwards to 1890 corresponds in weight and fineness 
with the dollar of 1837. 

Still, notwithstanding the pains taken and the changes 
made from time to time to keep the two metals in legal 
equilibrio, there never has been any considerable period 
in the century now drawing to a close, during which gold 
dollars and silver dollars have circulated freely and in- 
differently in the United States. Sometimes it has been 
the one kind, and sometimes the other kind, but never 
both kinds at the same time. The present writing is in 
the spring-time of 1890 : both kinds of dollars are legal 
tender for all debts public and private in the old-time 
ratio ; the national Government professes to be indifferent 
whether it pay out gold or silver in redemption of its 
paper-moneys, but after all, with the exception of the 



IIS 



IMMNI'II'LI'.S Ol'' I'OM TK'AI- I'KONOMV. 



riii'ilic SliUfs iiiiil !i li^w sjicciaJ Itriiiiflii's of hiisiiicsH in 
lliii cil-ics (»r tli(^ j^ii.sl, mid dl (lie MmIiIIi', I'jnld ctiiiiN lU'd ikiI, 
now ill {'(tiiiiiioii ciiiiiLiI Kill, (III' l»;iiik (Intwcrs crowded 
willi siivtM' dollars Inl lilllc of Ihc w cij^lil and scu^ lilllc 
of I lie .siiiiic of liit'j^did foiiis, ami il a.ii\ td I lii'sc (diaiicci 
lo III' paid oiil 111 oidiiiary liaiik-ciisltiiMca'M (licy art^ lU'ctly 
I'cilaiii lo ii'luiii III .s|ic(Mly dcpoHil. Tlu' llicoi'ct ical 
Itiiiii'liilli.siii ol llic [liiilcd Slates lias liccii a inailical 
llioiiuji altiM'iialo Mioiioincliillisiii will) \arioiis iiicidciilal 
and coiifiirmil disa<lvanlat;'t's and losses. 

Uy lSj»o (licsc disail vaiiliiuj'cs ol a. loiij^-al l('iii|il('d doiililc 
M ea.su re o I Ser\ H'cs made le<^al lender Im all delils lia.d 
lieeoine jilaiii eiioindi In e\ei'\liod\, Itu e\ { leiieiiee had 
deiiiiiirsl I aled llial llu^ N'aliK^ ol i^old and siKcr each in 
tnudi Wiis nol eonslanl luiL eoiislaiil ly vaiialile; and ( 'on- 
H'l'i'ss llieii \\i.sel\ deleiniined lo nuike (Jold aloim iJie 
lei;al tender, e\ee|il in sums lielow ^C). In eonneetioil 
Willi this ^reat elian^'c^ in tlu^ eoinae-e, a. lesser oiu^ was 
introdneed a.l the same lime, namely, Id rediiei^ the wei;4ht. 
ol" the sih'er liairdollar and its siihdi visions, so that their 
nominal \alne in the eoinanc should he eonsiderahly aliove 
their nuUallie valiuv and their e\|ioiiatioiis he llins pre- 
veiiti'd. AeeordiiieU , the haH'-dollar was ri'dneed in 
wcii'hl rr<iiii l!0(i'| to lii'J ^'lains, and I he smaller coins 
proportionally. This was in imitation ol' tlu^ l'liiL;lish 
le«;isla.tion of liSlli, and l»roiiL;'hl into this eoniitr\ a, .s/(/' 
aiiliiirj/ silver coiiiai;t', which still eoiiliniies, and of which 
a nominal dollar's worth wtM^hed (t.!>l'/) less than I he 
Silver hdllar, which was not intMilioiicil on(* way or the 
other ill the law of IS;");>, Iml which was then worth ahont. 
I lirce ceiils more than the ^dld dollar, and was of course 
w IioIIn' out of cireiilal ion. 

'riironi^h the iiilliieiicc of the late Saiiiind l>. Unt^'c-les, 
these snlisidiar\ silscr coins were hroiij^hl in IS7.'> into 



MONRV. 4 1 U 

Ji:i,rinoiiy ■.villi l,li<; ;jl V';r ;iy;;l,(;ui ol (''rancc and Ui'; L;i,l,iti 
Ijllio/i. 'I li<;ir live IV;ui(; iill V';l' |ji<;(;<; wlii(!h JH sUho ,",, liti';, 

wcighH juMt 25 ijro/mM or iiHf).H f/rainH ; a dollar'n wot 1,1 1 oT 
our Hul)Hi'li;i,ry nilvor, ji,h wc fiitv; jumI, ;x;(;h, w-if'li'-'i ii^^'l 

^raiflH; ;i.ii<l ll, W!I,H, Ui<;I'<!ror'<;, ti(;<-,<iriil i.o ;i,'l'j only ;i, ;-,li;'|jl, 
flW/(/i'<ii ol wjj^'ljty l-o our i;/n;i,ll<;)' hil v<-,i' coin;; in or'J';f l,o 
knit a n-M\ c.oniioc.ljoii (;<;I/W(;i;/j thonj iui'J Jiiucli of Uio 
Kuropcan iiilvor. Two IijiJvoh, four qijiij'l/cni, \,iu\ diiri<;;-( ol' 
oiij- ivil V';i' isinc,!; |M7.'>, ;u'<; 'J(;lj;i,;';<;<i in wcjt'jil, ''nol, in (in<;- 
ucHH) (')A1 'fo iVA (;omj)ii/r<!<J witJi Uio Hl/iui<J;u(J hiI v';i' 'h^lhtr. 
A uioi<', inipoibijil, (;oin!i,!.^<; coniiccUon wiUi I'iiiif^pc wan 
I'.nil, l,liroii"l) onrlir:-,!, li v, '■'■.nl, ni';h<-l pi<-,i;<;;',, (;:<,(;li of v/lii';!! 
woigfiH juhL live (jraniM^ iUi'J livo of wliioli lai(i ii,long iti ot(i';r 
rn<;ji,Hiii'o (',X!i,(',l,|y ji, (Iciu.mcl.ri'. in long'Ui. TIichc/ wof<; IJk; 
(li'Ht orii<!iji,l ;i,p|>lii',;i,l,io)i;i of \\\{', M<il/ric HyHtciri on Ui<; p;i,/l, 
of I, Ik- ('nil,(;(J Stat(!H. 'I li'-- ni-'kcl pi(iCt>H, boUi Ui(; livo 
ccnl, ;u)<l IJi't fli/'OC-c-^Jif, ;ui; 7/> pa-tiH oopj')Of' itrid ''iXi piU'iM 
ni';l'.c,l ; ;i,n<l Uk; on<; '-.cjif pi'ico in 1)5 paj'(/H f-oppcf ;ui'i 5 
pai'tH tin-zinc. I)('J>I,h of \ cf'.nfH <;;ui ho l(;j.';i,lly p;i,i(| in ono- 
oonfc pioo<iH, of 00 oonl/H in Uiriio-oo/il, pio(;oH, of 100 confM 
in fiv<i-<'-onl/ (tiofiOH, of 500 contH in Hulnwluiry Hilvcr, !i,n'J of 
ii,n y iunoiuil, in ;',ol<l coin;; or in ;iilv<;i- (hilbiriu 

i'Z. A wjmr/i/ vrijCnor in iJcMWdi value, w'dl,, ho lonif OM it 
(draubdcti locallif^ (l.ri.vc. a nupcrior momiy <iul, of iJw, clrcula- 
l.lon. 'I lii:', propoiiiljon i;i ;i, fiin<l;u(i'-,nl,;i,l ;i,ii'l nni v,i;;;i.l one 
in jno;iol,aiy Sci<;n(!<;. 'I'lio on) y oxooplioji l,o if in found in 
tokcfirnomH, ;iu<\ in Hu()Hi(li!i,ry Hil vcr ho far an thai/ lian tiio 
lok(m-( {w.iWi.y^ tli;i,t in, ho f;i,r ;ih itn nominal in aliove itH bullion 
V;i,lu<;. 'I'lic tri.Tin nioiJv, in c.oininp- l,ok(;n;-, i;; l,o ni;i,k'; unco 
loi- il,;( own lof,;i,l u;;c,;; of ;i, n;i,l,ion';-; iuii;i,ll <;li;in,"(;. 'I okcn- 
money i;i \voil,lil<;:;;i foi' export, in only dciHi/^ncd foi' the 
HHiallor (jxehan^cH, in logiil icu'lei only for very Hmall HumH, 
and in wm',\A,',\,])\(', ()\\\y on loeiiJ ;ui<i eonventional ^'•ronndH. 
Tho 0X(5()[)tion asid*!, tho ai)ov(! proponition i-s a pervadijig 



420 l'KIN(MI'[iKS OK POLITICAL ECONOMY. 

uiul coiilroUiiin' L;i\v ol' I'^iimiuu^ iiiid has been illiistialcd 
over and over a^-ain in cvi'iy Ai;c and Nation. It is as 
solid as the substanci^ of truth can make it, althouj^h it 
looks at iirst siii;ht like a paradox. Wo naliirally Ihink 
that, what is cxi'idk'iit. all round tends ratlu'r to (ns[)laoc 
what is inlerior in spots, but with Mouthy thu exact reverse 
is the law ; and the perfect coin ol" lull weight, instead of 
driving out the light and the debased pieces, is always 
itself driven out of the circulation by them. 

The reason for this becomes obvious the moment we 
ponder the luitvire of Money. Money is always a Valua- 
ble, taking on in addition under J^aw or Custom the func- 
tion of serving as an instrument of Exchange. As money, 
nobody wants it ex{!e])t to buy with, and so long as the 
(irovernment and the community ti'eat liglit coin and full 
coin as of ecpial value, receiving them indilferently in pay- 
ment of debts and of taxes, it is clear that nobody will 
givt! in payment of debts and of taxt's that wliich is I'caliy 
worth more so long as that which is really worth h^ss will 
go just as far. The inferior ])i(^ces will abide; in a market 
where they will l\'tch just as nnich as the superior pieces, 
while the superior pieces will take on a form or migrate; to 
a place in which some advantage can be gained from their 
superiorit3^ Thrown into the crucible, or exj)orted in 
(;onnnerce, this superiority immediately manifests itself; 
and therefore into the crmuble or into the channels of 
foreign trade it might be conlidently ])redicted beforehand 
that such money would be thrown, and all experience tes- 
tili(\s with one voice that exai^tly those are the destinations 
of such money. 

Aristophanes, the Greek comic poet, in the 5th century 
before Christ, seems to have been the iirst writer who 
noticed that good coins of full weight are apt to be 
crowded out of the cirrulalion by the lighlci' and [)ooi'er 



MONEY. 421 

pieces, and he, mistaking the cause of this, satirized his 
countrymen unmercifully for preferring bad coins to good, 
and demagogues, like Cleon, to honorable citizens for 
rulers. The following are the verses : — 

"Oi'tentirrifiS have we reflected on a similar abuse, 
111 the ciioice of men for oihce, and of coins for common use ; 
For your old and standard pieces, valued and approved and tried, 
Here among the Grecian nations, and in all the world beside, 
Recognized in every realm for trusty stamp and pure assay, 
Are rejected and abandoned for the trash of yesterday; 
For a vile, adulterate issue, drossy, counterfeit, and base, 
Which the traffic of the city passes current in their place ! 
And the men that stood for office, noted for acknowledged worth, 
And for manly deeds of honor, and for honorable birth ; 
Trained in exercise and art, in sacred dances and in song, 
All are ousted and supplanted by a base, ignoble throng ; 
Paltry stamp and vulgar metal raise them to command and place, 
Brazen counterfeit pretenders, scoundrels of a scoundrel race. 
Whom the State in former ages scarce would have allowed to stand 
At the sacrifice of outcasts, as the scapegoats of the land." 

Sir Thomas Gresham, financier of Queen Elizabeth and 
founder of the Royal Exchange and of Gresham College 
in London, was the first thinker to understand fully and 
explain scientifically what Aristophanes and others had 
noticed as a fact, and what in its explanation may hence 
properly be called " Q-renham^s Law^ We will append a 
few historical illustrations of the fact and the law as 
instructive in many ways. 

(a) The City of Amsterdam founded its famous Bank 
in 1609, because no other way seemed to open of prevent- 
ing the clipped and worn foreign coins then and for a 
long time circulating in that great Mart of Trade from 
driving out completely the good money of full weight, 
which the Mint of the City had been constantly pouring 
in. The Bank was devised as a municipal Institution with 



422 PRINCIPLES OF POLITICAL ECONOMY. 

this intent ; it was a Bank of Deposit only ; it took in all 
the old coins at their bullion value only ; and then had them 
reminted at full weight ; it gave the depositors credit on 
its books in the terms of the neiv money for all of the old 
they chose to bring in ; it then adjusted accounts between 
merchants and all other of its customers by mere transfers 
on its books ; the City required all debts falling due in 
Amsterdam to be paid in the new " bank-money," which 
took away all uncertainty from Bills of Exchange drawn 
on Amsterdam, which were previously liable to be paid in 
the cli})ped and worn coin, and were therefore sometimes 
at as much as 10% discount in oilier cities; this simple 
requirement brought these foreign bills to par, and kept 
them there ; the full-weighted money now stanij)ed by the 
city Mint abode in the circulation, being now the sole 
Measure of Services there ; and thus it became the interest 
and convenience of every business man in Amsterdam to 
have these simple dealings with the Bank, which in turn 
enjoyed unlimited credit in the commercial world for almost 
two hundred years. 

(b) The great English Recoinage of 1696 was completed 
under the imperatives of Gresham's Law. Graphically does 
Macaulay describe the causes and the effects of this in his 
21st Chapter. The old silver coins had been stamped under 
the hammer ; few of them were perfectly circular ; the edges 
were neither milled nor fluted ; the legend was not so near 
the edge as that the letters were impaired by a little 
clipping; it was easy to pare off a pennyworth or two, and 
then pass the coins along ; it was profitable to do it, and in 
vain that Elizabeth enacted that the clipper must suffer the 
penalties of high treason ; nearly all the coin of the realm 
became mutilated, and about 1660 a new process of coinage 
was brought in. A mill worked by horses fabricated the 
new coins on better principles. They were exactly round, 



MONEY. 423 

and the edges were inscribed with a legend, and they were 
all of just and equal weight. They were thrown out to 
pass current with the hammered money, and it seems to 
have been expected that they would soon come to displace 
it. But they did not. Both were received at first without 
distinction by the individual traders and by the public tax- 
gatherers. But the milled money soon came to be scarce, 
and the old money grew constantly worse. The lighter the 
old coins became, the scarcer became the new ones ; for 
who would pay two ounces of silver when one ounce was 
legal tender ? The new money was melted, was exported, 
was hoarded, but circulate it would not. At length the 
lightest pieces began to be refused by some people, and 
other people demanded that their silver should be paid to 
them by weight and not by tale, and there was wrangling 
over every counter, and a dispute at every settlement, and 
the coin was really so diverse in its value that there was 
no longer any measure of value in the kingdom ; business 
was in utmost confusion, society was by the ears, poor 
people were unmercifully fleeced, and shrewd ones grew 
enormously rich ; and the Jacobites secretly exulted in the 
hope of being able to avail themselves of the prevailing- 
discontent to overthrow the scarcely established revolution- 
ary government of William and Mary ; when, by the joint 
counsels of two such philosophers as Locke and Newton, 
and two such statesmen as Somers and Montague, the 
government took the bold resolution of recoining all the 
silver of the kingdom. An early day was fixed by Parlia- 
ment after which no clipped money could pass except iu 
payments to Government, and a later day after which it 
could not pass at all. 

(c) Gresham's Law has had beautiful illustrations in the 
monetary history of the United States. We have already 
seen the reason why the first silver dollars of 1794 could 



424 PRINCIPLES OF POLITICAL ECONOMY. 

not compete in currency with the gold coins of 1795, — 
the silver was under-valued in the legal ratio 1 : 15, — it 
would have been much nearer the European market at 
1 : 15.5. There was another reason operative in the same 
direction from the beginning, which did not, however, come 
to the notice of the Government till ten years later. Only 
321 silver dollar-pieces were coined in the year 1805 ; and 
May 1, 1806, there stands an order from President Jefferson 
to the Director of the Mint, — " that all the silver to be 
coined at the Mint shall he of small denominations, so that 
the value of the largest pieces shall not exceed half a dollar.'^ 
The presidential reason given for this order is, — " that con- 
siderable jyurchases have been made of dollars coined at the 
Mint for the purpose of exporting them, and that it is probable 
that further purchases and exportations will be made" The 
coinage of silver dollars thus suspended was not resumed 
for 30 years. What was the matter with these dollars ? 
Nothing, only they were too valuable. Hamilton had 
adopted for his new dollar the exact weight in fine silver 
of the normal Spanish-Mexican dollar, then and for a long 
time the unit of the thriving West India commerce ; clipped 
and worn coins of this popular stamp had slipped into cir- 
culation in large numbers throughout the United States, 
and driven out the new and good pieces in accordance with 
a principle much better understood now than then ; the 
President's order itself was not very intelligent, inasmuch 
as two halves, four quarters, or ten dimes, were then equal 
in weight and purity with the dollar-pieces, and as a matter 
of fact were almost (if not quite) equally driven out by 
the smaller Spanish-Mexican coins. The " four-pences " 
and" nine-pen ces" ("York shilling") of that coinage were 
almost exclusively the small change of New York and 
New Encfland during the first half of this century. The 
" dimes " and " half-dimes " of our own mintage, though 



MONEY. 425 

long legalized, were 'but slowly naturalized. The coin- 
changes of 1853, already described, gave a fair chance for 
the first time to our smaller silver coins. 

The last native illustration of Gresham's Law will force 
us to anticipate here the discussion under the next numeri- 
cal heading, so far as to assume that there is such a thing 
as paper money, and that the Law now in hand works in 
connection with that as well as with diverse forms of 
metallic money. In 1862, Treasury notes, commonly called 
Greenbacks, made a legal tender for debts though not bear- 
ing interest, were issued by the national Government to 
the amount of 1450,000,000. Of course, under these cir- 
cumstances they depreciated in value as compared with the 
gold dollars, which gold dollars they were unfulfilled prom- 
ises to pay. Just so soon as the greenback dollars fell fairly 
below the gold dollars in value, the latter left the channels 
of trade in a very few days' time. Down sank the green- 
backs gradually below the subsidiary silver coins in value, 
and the latter obediently and utterly abandoned the com- 
mercial field. At last the greenbacks went down even 
below the level of the copper cents, which at that time cost 
the government about half a cent each, and this invariable 
law of money swept the circulation bare of coppers, and 
the people had to resort for their smallest change to postage- 
stamps and shin-plasters and other abominations. Happily, 
the country survived to see these processes exactly reversed, 
and the old law confirmed on its other side. When, after 
a considerable interval, the paper dollar appreciated to the 
proper height, it was interesting to watch the copper cents 
put in a prompt re-appearance ; after a still larger appre- 
ciation of the paper, back came in abundance the subsidiary 
silver ; and as the day of the redemption of the paper drew 
near, silver dollars and gold dollars greeted smilingly their 
old acquaintances of the street. 



1*J() PKlNrilM.KS Ol' roMru'M. I'.CONOMV. 

l;>. So tar w t' \\:\\c \vc:\{cd oiilv o\ ('oin-Moncv in i(s 
[\\o \'ov\us, aiihadintir,' and t^Khnitiiori/. Tlu" lalttM- ina\ now 
l»o di.siuisso«l as of lidK' t'i>ns(H|mMU'o in itsi-H", and as 
alroatly olucidalod iiill\ : llit> lalttM' is (lio only Monov (hat 
stands in its own ri>;lit as a (•dDiDiotiiti/, i\\\i\ tl>i> onl\ Mont'y 
tliai oan give lurtli (o Iho /K'n<>inin<i({onK ot N'ahu', siu-li ;is 
soviM'oioMs, dollar.s, tuavUs, and francs. W/uif Ik a Dolhir:* 
A d(>llaf is i!r>^ j>'rains ot" a nu'tal ('ompoiind I'oiniMl, oi 
whirh nino parts aro pin'o L;'old and ono }>arl a, l\ai'doMini>' 
alloy. It is a dotinih* quant it ji of a tliino- dclinitolv and 
K\i;'alh d(>Si'rilHMJ. It is a visiUK* and (anj^ihlo and wrll- 
\<\\o\\\\i\)mmoditii. (ioMMiinionl is oouipo((Mit, if it j>U\is»\s, 
to altor tho (|nantil\ o{ v'o\k\ that sliall constituti> w. dollar, 
alllionjdi tlio ri'oi>lo will tiniikh and ronjdih rradjust tho 
[M'iiHvs o{ Sorvii't^s to a chani^od measure o{ tlitMii; it is 
voni|)otont .'vtMi to niako a dollar onl o{ sihci', as (>nr (J(>v- 
i>rnn»ont has tried to do (^ lor tlu> most |)art \ainlv)fora 
(.'iMit nry, thontdi it is //(>/ i'oin|H'tiMit to I'ansc both dollars 
to oironlalo as snrh at tlu> sani(> tinio; bnt i'ivili/.«Ml and 
advanoml (unornnuMits aro not prai'tirallv cominMont to 
niaUo a PiiUai- ont o{ an\ thiiu;' idso than u'old and sil\(>r. 

Monoy is a i-nrront and lo^al Mtnisnri^ o{ Sorvioos; for 
tho tMid and in tlu> wav in which Mt>no\ alono ori^inati^s 
and lH>i"onu's rnrront its niatiM'ial nuist W a valnahlo ooni- 
nu)dity : and aftor I'ontnrirs of oxj^iMiniiMits and oxoliKsious 
no civili/od I'oi^ph^ nmv toloratt^ anv *>thor ('(Muniodilv in 
this lolaiion than j^old or sil\(M'. Smdi a schu-tiMJ I'tnn- 
niodit\ lH\'onhn<;" in tlu^ ntannor alriMd\ (>\plainod an 
aotnal nioilinui passin<>- from hand to hand in l\\i'haML;"os, 
improssos its tuimc on the minds oi mon as an itloal tiirdHKrc 
of s(M'vii't>s, which nu'asnro thoy can nsc. and i\o constantly 
use, withiuit handlino- at thi' time the commodity itself. 
Hnt these ideal-dollars, tliesi> denomination-dollars, need to 
he kc[>l in check h\ a ^-onstanl recnrrence to actual, pal- 



MONEY. 427 

pablo liiin^-dolJarH. Tlio denomination only comes into 
existence in connection with the nse of the thing, cannot 
possibly exist indopoiidently of" it, and needs constantly to 
b(j reduced to it (as it were by actual contact_; in oi'der to 
be useful as a measure. Just as men talk about inches, 
and calculate by inches, in thousands of cases in which no 
actual inch is used as a measure, and in every case of 
doubt, dispute, or difficulty have recourse to the actual 
inch, and thus the ideal inch is kept steady in the minds 
of men by frequent reference to the outward standard ; so 
the mental measure of seiTices, which men insensibly 
acquiic f)orii tlu; use of th(; objective measure, needs to be 
kept true by actual and freqiicnt cojitact with that measure. 

I3ut besides this Thing-Dollar and its Denomination, 
which always go together like a man and his shadow, there 
is one other kind of Money, namely, the Promise-Dollar. 
We must now attend to this. What is a Dollar-Bill? 
How does it read? It is always a i;*romise of some Issuer 
to pay to bearer One Dr^llar, that is to say, this legal and 
definite quantity of a precious metal. There is no mysteiy 
here. There can be none. A Dollar is a tangible and 
weighablc commodity. A. Dollar-Bill is a Promise to 
render this commodity to bearer on demand. The differ- 
ence is the same in kind as that between a bushel of com 
and a man's promise to his poor neighbo]- to give him a 
l)ushel if he will come for it. It depends on the man, on 
his ability and character, how much the corn-promise is 
worth ; and sf) it dcpfjuds on the issuer, on his ability and. 
character, how much the cf)in-promisc is worth. The Issuer 
may be of su(;h standing as to be able to secure for his 
promises that they become "a current and legal measure 
of Services"; and if so, they become Money under the 
definition. 

There is, then, such a thing as Paper-Money, though 



428 PRINCIPLES OF POLITICAL ECONOMY. 

many high authorities are reluctant to concede, that any 
mere promises can be money at all. For ourselves we 
cannot refuse the courtesy of the term " money " to paper- 
promises-to-pay-coin, which our Country makes a legal 
tender for all debts, public and private. The making 
them legal tender, however, does not alter their nature 
one particle. They are still promises, — and nothing more. 
Their Value depends in all cases upon the character and 
resources of the Issuer ; their Curreyicy may be quickened 
(at some rate of value) by their being made a legal tender. 
Nothing can by any possibility become a Money unless it 
first be a Valuable. The essential characteristic of Money 
is its possession of a generalized purchasing-power. The 
Value of a promise depends on one set of causes, with 
which we are now very familiar, — the same causes on 
which the value of everything depends ; the Generalization 
of any purchasing-power into money depends upon another 
set of causes, of which the action of a Government in 
legislation ma}- be one. 

Paper-Money, as now defined, may be issued by Banks 
with or without an indirect government sanction, or 
throuofh the direct action of Government. The Bank of 
England has been issuing since 1694 paper-money under 
a series of Charters granted by the Government, which 
becomes thereby in a manner responsible to the bearers 
for the redemption, that is, the fulfilment, of the direct 
promises of " The Governor and Company of the Bank of 
England " ; since 1863 the so-called National Banks of the 
United States have issued promises-to-pay, designed to 
circulate as mone}^ under the direct authority and quasi- 
endorsement of the national Government; and since 1862 
that Government has been putting out directly its own 
promises commonly called " greenbacks." These last have 
rested and now rest for their value solely on the good faith 



MONEY. 429 

of the People as between themselves. By a separate and 
additional act of legislation, which it is mischievous as 
well as unscientific to confound with the original promise- 
legislation, this particular paper-money was and is legal 
tender for debts, which collateral circumstance whether 
wise or unwise neither changes the nature nor lessens the 
obligation of the original promise to pay coin. No so-called 
Decision of the Supreme Court can abolish or abridge a 
natural and scientific distinction. Money is at bottom of 
two kinds only: the first kind is an intermediate and 
equivalent merchandise. Coin ; and the second kind is 
Promises to pay this to a bearer on demand. Paper 
Money. 

The only way to make any promise respectable is to 
fulfil it in due time. The only way to make Paper Money 
a decency is to hold sacred in action the promise that 
distends it. The United States undertook in 1862 and 
onwards to make its own plain promises respectable by a 
different method, namely, by legally asserting in substance 
that the promise is its own fulfilment^ and needs no other ; 
and in this persistent undertaking encountered a miserable 
failure throughout ; because the People also persisted in 
estimating the promise solely in the light of the prospect 
of its literal fulfilment. The greenbacks at one time lost 
two-thirds of their normal value under the working of 
such estimation. This question of the relation of two 
kinds of Money to each other is a question of Economics, 
and not of Constitutional Law ; or rather, it is a question 
of common sense and common honesty, and the judgment 
upon it of nine men learned in the Law is no whit better 
than the judgment of nine other intelligent men. 

As Money is analyzable into two varieties only, Coin 
and Paper, so Paper Money falls into two classes. Con- 
vertible and Inconvertible. A convertible paper money 



430 PRINCIPLES OF POLITICAL ECONOMY. 

consists of promises that are always kej}t by the issuer 
according to their terms, that is to say, that are paid in 
specie at the will of the holder. An inconvertible paper 
money is only another name for unfulfilled promises. Is 
it any wonder that unfulfilled promises to pay invariably 
become less valuable than that which they promise to pay? 
They are valuable to start with, else tliej^ could not be- 
come money, and they are valuable because men suppose 
the promise will be kept : they are commonly valueless to 
end with, because men lose faith in the fulfilment of a 
promise long delayed. This is the simple secret of the 
depreciation of inconvertible money so soon as the amount 
of it passes a certain limit, and so soon as a certain time 
has elapsed after its issue and the issuer shows no signs of 
keeping his word. As money is only a measure of Ser- 
vices, and as possible Services are limited at any one time 
and place, and consequently as the amount of money 
needed for healthful business is limited also, a steadily 
convertible paper money, provided the limit of quantity 
be not overpassed, will constitute a tolerable money. But 
this limit of quantity is apt to be overpassed, whether the 
paper money be convertible or inconvertible, and especially 
in the latter case, because the temptation to issue promises 
to pay in excess of the means of promptly redeeming them 
always besets the issuer on account of the gain to him in 
such issue at least for a time. This temptation has been 
yielded to first or last by every nation, and probably by 
every corporation, that has ever issued paper money. The 
Bank of England has been on the whole the best managed 
Bank of Issue in the world, and its Bills (Promises) have 
gained the most confidence and the widest circulation. 
This is because they have been kept by the Issuers con- 
vertible from the beginning, with the exception of two 
comparatively brief intervals of time. As already related 



MONET. 431 

under the last general proposition, the silver coins of the 
realm were much worn and clipped when the Bank was 
established in 1694, the Bank, however, had received them 
on deposit of customers at their full nominal value ; but 
after the Recoinage began in 1696, it was obliged under 
the law to redeem its Bills in new coin of full weight, that 
is, for perhaps 9 ounces of silver received, it was now 
bound to pay 12. Consequently its enemies, the Jacob- 
ites, made a " run " upon the Bank by collecting up its 
Bills to a large amount and presenting them for payment. 
The Bank was obliged to suspend payment, at first par- 
tially, and then generally. In February, 1697, the Bills 
were 24% below par. The Promises could not be kept, 
and therefore they drooped in value according to man's 
estimation of the probability of their becoming again con- 
vertihle, which happened in the course of that year under a 
new charter and privileges from Government to the Bank. 
Just 100 years after the first suspension of specie pay- 
ments, in 1797, when the War of the French Revolution 
made such demands upon the English for money, the Bank 
broke its solemn promises the second time, and did not 
formally resume payments until 1821. Government and 
the business men of London did their best to hold up the 
credit of the notes during the suspension, hut they were not 
made a legal tender for debts. Government received them 
at par for taxes, and provided that business payments in 
notes would be held as payments in cash if offered and 
accepted as such. Debtors, having tendered bank notes, 
which the creditor refused, had certain privileges before 
the law which other debtors had not. The notes therefore 
had a quasi legalization, but not a forced circulation. The 
bank was also authorized at this time to issue X5, X2, and 
c£l notes. Cautiously issued at first, bank paper continued 
at par for several years after the suspension, which proves 



432 PRINCIPLES OF POLITICAL ECONOMY. 

thiit when <^()V(M'iiiiu'iit possesses the monopoly of issuing 
paper money, iind careluUy limits its quantity, and both 
receives and pays it out at j)ar, it may keep an ineonvert- 
ible paper at par, or even by sufficiently limiting its quan- 
tity carry it above par. lUit this tmth does not make an 
inconvertible paper a good money, beiuiuse it does not 
niake it a scli'-regulating money, and l)ecause government 
is not wise and lirm enough to lix; and maintain a proper 
limit. Though Parliament intended in successive acts to 
conlirm to the Hank of England the monopoly of banking 
by cna(;ting that no partnership ol' more than six persons 
sliould take up money on its own bills, yet the common law 
assured t(j private persons and smaller partnerships the 
right to do this ; and private bankers multiplied after the 
suspension, since they were allowed to pay their notes in 
Baidv of Eiigland notes. Thus the quantity of paper money 
gradually increased till in August, 1818, the Bank of Eng- 
land notes were at 30% discount in gold. 

The United States, both as Colonies and as a Country, 
have had varied and instructive experience with inconvert- 
ible paper Money. We will glance at two or three speci- 
mens only. The lirst issue of Treasury Notes, commonly 
called (Trccid)a('ks, given by (/ongress the quality of legal 
tend(U' for all debts, public and private, except duties on 
imports and interest and principal of the national bonds, 
was made in April, 1862, and was justilied in Congress 
and out solely as a war ineasure. An aggregate of $450,- 
000,000 was put out in all, of which *87,000,000 were 
afterwards taken in, and the balance was still circulating 
in 1890. In one month after the first issue of -1150,000,000, 
these greenbacks began to droop in value as compared with 
gold ; in four months, when the second batch of -1150,000,- 
000 was authorized, their (h^preciation was already marked 
and lirm; and in nine months, when I'resident Lincoln 



MONEY. 433 

reluctantly gave his approval to the third issue of the 
same amount in order to pay off the soldiers and sailors, 
he uttered a solemn protest against the policy of thus inflat- 
ing the current money, which, he said, " has already become 
so redundant as to increase prices beyond real values., thereby 
aAKjmentiny the cost of living to the injury of labor., and the 
cost of supplies to the injury of the whole country.'''' In 
March, 1863, '150,000,000 of paper promises for fractions 
of a dollar were authorized, redeemable in sums of not less 
than three dollars in greenbacks, and receivable for all 
dues to the United States less than five dollars, except for 
duties on imports. Subsidiary silver coins have since taken 
the place of these fractionals. In July, 1863, the green- 
back dollar had lost one-quarter of its nominal value ; in 
July, 1864, it had lost almost two-thirds of its nominal 
value, as its lowest point was reached in that month, 
namely, 35 cents as compared with the gold dollar; in 
July, 1865, it had risen to 70 cents ; in July, 1866, it stood 
at 66 cents, just two-thirds of a dollar proper; and from 
that time it slowly rose, with many fluctuations, till New 
Year's, 1879, when it became legally and actually redeem- 
able in gold and silver. Its variations for the sixteen 
years, however, cannot be counted by the number of years, 
nor even by the number of days ; for they were numerous 
on each business day, and, as Comptroller Knox says, "caw 
only be numbered by tens of thousands.'^ What a Measure 
of Services that was ! 

Between 1863 and 1879 the Bills of the new national 
Banks were redeemable in the greenbacks only, that is to 
say, one species of national promises-to-pay were paid on 
demand by another species of similar promises, both alike 
inconvertible into coin ; and, as a natural consequence, the 
bank-bills bobbed up and down in value in servile obedi- 
ence to the inconvertible lesfal tenders. 



KM I'|;in(MI'Mi;m <»i' I'<m,i'I'I(iai, I'Iconomy. 

MiiMMitrliiiHcl l;t ('(ildiiy wm IIh' I'll;.!, cdiisl iliicnl, ul' Mm 
|)i'(^'iriil lliiiird SUil'i^'i ImiIIi 1(1 mini lulvi'i., ;iii(i lo iMMiic, 
in'r(|i'i'iri;ililr | tiuitiiscM Id |i:iy iL I'lnli r IJic, j'hJhi^ itiipn'H- 
Hioii iliiil only MoiKiy iiiiidc inrciiur lo Slcrliiij'; would 
Hhiy ill llm ('(iloiiy, MaHHllcliiiscI Im Ih'j'iiii lo mint in lii^li 
HJlvfT Hliilliii^M iiml Mix|M'.iiccM iUMi |Jir(r('|)mic,(%s |»iii|i(iM(',ly 
(l(il)ii,H(!(| ill wi'ifHit ( iiicln(liii|'; f<<'if>iii(>r;ijn' ) ''J.'J.'f,, hi'luw 
Mlcrliiij';. 'riic iiiivcr I'di' llicnii coinM (Mine in ino,',||y rioiii 
l/li(i ti'iulc, vvilli llm W(!hI. IiidicM, lu whirh wdc m»\v Hlii|)|)(!d 
pdll.i'y, I'imIi, viU'i<MiM rmiiiH (d' liimlicr, |)i( I., jKnk, |)('ii,M(!, (!ii.l-- 
l.l(!, mid Ikithcm, iOv wliirli lliry look iiiiiinly mii<';;u', iiioIumsch, 
I'liiii, ;uid ;,ilvrr. '•'■ '/'/hi/ /I'mi/i/ /lurr /ironi/fi/ nnirc hHiut 
iIik/ /ruH nun mnl ol/icr Jiirrr/iiiin/iy.r, /no/ l/ic /irrl luwii in, 
f/rnifrr rci/iirxl (1/ /luiiir.'' ( I tidiiMoii. ) .lolni 1 1 nl I, I lie mini 
niii,H(.(!i' look oiil \'> |)ciirc (iiil, (if cvi'iy C lur In.i own jiii-y, 
lUid i^i'dw rich l»y llic |M<icr;;,M. 'HkiI. wils over ('»'/,. In 
ir>(J2, II. I \vit|iciiny |)icc(5 \v;i,H ikMimI lo IIk^ H^ricH, iunl llic 
mini cxislcd { mhiicI iincM idir ) jur over JiO ynu'M, Iml ;ill 
(,ll(! piccrM cniiifd Imiic llic d;ilr;i oj |(i.Sli(ir hidli. 'I'Imh 
piuicily (d diilrM i.'i commonly :uid |i('rli:i|i;i |ii'o|)(!i'ly iic- 
coiiiili'd lor on llicj'ioiind I li:i Iciiiniii;'; in ilic colony vviiM 
coiiliiiiy l.o llic |(rcro)';;il i vc of llic ( Town ; Itiil, ii< Ih (o ho 
lidded Ihid. .loliii Null will iiol :i. imiii lo ;;'id. M(!W di(^4 ho 
Idiin; ;i,M llic old oiicM wniild ;ui;iwcr Ium |)ni|ioMc. The hiw 
lorhitdi'. llic. (^\|)oi'i.niioii ol' Uic.Mn piect^H iiiidci' llm |)(;ii;iily 
of Iherchy roireiliii)'; oiki'h vvIioIi! visihlc cmIiiIc ; h(!ciuiH(% 
Ihoii'di lluM moiic\' w;iM much wiUMc lli:i.ii Mlcilin;;, Ihcrn 
vvilH II. woiitc money lh;in llii;i ci iciihil in;'; in llic colony, 
ii.lid ( ireshiuirM lii.w hei';;ui lo crowd il. Iifmi Ihe lirsl, ;uid lo 
Home ex Iciil. il. WM.'t hoi li siiiUf'idcd oiil. .ind cli|i|)ei| down, 
r.iil, il. rnnn.hcd ;i. .soil, ol' ;il;ilid;i.rd, iie\ cii lielesM, ii.iid 
tended lo keep Ihe hiler money williili di.sliuil. Hij^lil. of Ihe 
hIIviu', iind hcciiinc Ihe rciiHoii why in New I'ilij^'liilid there 
were MIX Hhilliii;';.s |.o ihi' (lolhir. 'The Sp;iiii:;h pilkir dollar, 



MONEY. 435 

which was the stixndard in tlio West Indies, was worth 48. 6d. 
sterling; and in 1(172 a hivv was j)assed in JMassachusetts 
allowing these dollars to circulate at 6«. provincial, which 
was a discount on the home pieces of 26%. Ever aftei' 
there were six shillings in a dollar in New England. Hull's 
money is called the " pine-tree " coinage, and was the only 
coin money minted in the country till after Independence. 
Also in 1690 Massachusetts set the first example, which 
was imitated 20 years later- }jy the other New England 
Colonies and by New York and New Jersey, of issuing 
"Bills of (Jre<lit" to meet the expenses of the two disas- 
trous Expeditions against the Frencli in ('anada. Those 
Bills were not made legal tender in private payments, and 
pains were taken to keep up their credit, })iit tliey were 
depreciated from the first, and came to ])e very much 
de])reciated. Massa(;]nisetLs and donneciticut made their 
bills receivalxle for taxes at a premium of 5%, laid s[)ecial 
taxes for their redemption, and from time to time called 
in portions of the issues. In 1718 (/onnecticut enacted 
that a debtor tendering these bills should not be liable to 
legal execution on his estate or person for the payment of 
that debt, an expedient, as we have seen, resorted to by 
England in the great Bank restriction of 1797-1821. 
These early New England bills bore no interest, were not 
loaned out by the colony, and were a convenient though 
dangerous means of anticipating the income of fnture 
taxes; but after 1712 a paper money scheme originating in 
South Carolina came into favor in the colonies, which was, 
to oj)en loan-offices for the issue of colony bills on the 
mortgage of land, the interest on which helped to pay the 
colony expenses, the principal of which at first, and on 
being paid back and re-loaned, furnished a capital to bor- 
rowers, while the bills themselves furnished a money for 
the people. Pennsylvania had the best luck with this 



430 rRlNCIPLES OF POLITICAL ECONOMY. 

scheme of all the colonics which tried it: as early as 1729 
Benjamin Franklin becanu! thorouglily possessed of John 
Law's notion, that 2)apcr niojicy may l)e "based" on land 
or other valuables, saving in a })am|jhlet of that year that 
"■ bills issued upon land are in effect coined land "; Penn- 
sylvania bills nevertheless were at 46% discount in 1748. 
Some of the later colony bills bore interest, some were of a 
'•new-tenor," so-called, designed to take up the old ones, — 
Virginia in 1755 made hers a legal tender for debts, — some 
wore issued in bounties for Indian scalps and for various 
manufactures and hsheries, but all ran one road of depre- 
ciation and gave birth to one set of results. Coiniecticut 
managed her issues the best of the colonies, and yet 
Bronson says of the state of things in that colony in 1749, 
" Trade was embarrassed and the utmost confusioti prevailed : 
no safe estimate coidd be made as to the future, and credit 
loas almost at an end: no man could safely enter into a con- 
tract which was to be dischar(/ed in money at a subsequent 
date : prudence and sat/acitij in the management of bnsiness 
were without their customary reward." 

John Law, a shrewd Scotchman, born in Ediid)urgh in 
1671, son of a goldsmith, with an innate talent for tinance 
and well educated, was the first to give scientific form and 
color to the false theory that pa})er money represents com- 
modities of some sort, and may be issued to an amount 
equal to the value of those. " Any yoods that have the 
qualities necessary in money may be made money equal to 
their value. Five ounces of yold is equal in value to £20, 
and may be made money to that value ; an acre of laud is 
equal to .€20, aud may be made money equal to that value, 
for it has all the qualities necessary in money.'^ The fal- 
lacy in these words of Law is patent enough to any one 
Avho will stop to think a moment about the nature of 
Money. Because land, for example, has value, it does not 



MONEY. 437 

follow that it lias " all the qualities necessary in money " ; 
and, as a matter of fact, it lacks the precise quality neces- 
sary in mojiey, because, though it has purchasing-power, it 
cannot from its very form and nature become a (jeneralized 
and current purcliasing-power. Money is indeed a valu- 
able thing, but tliat does not prove that all valuable things 
can be money. Witli this radical vice of Law's view was 
wrapped up another, namely, that there may be in any 
country as much paper money as the sum of the values of 
all its valualile things. Now, we have learned perfectly, 
what escaped the acute intellect of John Law, that Money 
is only a valuable measure of all other salable Services ; 
and therefore, that the amount of it that can be made use- 
ful at any one time and place is strictly limited, and bears 
very little relation to the sum of the values present at that 
time and place. 

Scotland fought shy of Law's idea when he published it 
there in 1705, and so did Paris the first time he visited 
that city, in which and in other cities he gambled success- 
fully and talked fniance to piinces and statesmen fascin- 
atingly; but v/hen he returned to Paris in 1715 with his 
ill-gotten fortune, he gained the ear of the Regent Duke 
of Orleans, who permitted him to found a bank there, in 
which were incorporated some sound principles of mone- 
tary science as well as the prime fallacy of his system. 
The bank bought a portion of the State Debt, just as the 
Bank of England had done, and laid in also a fair stock of 
coin, and thereupon issued a paper money. For a couple 
of years, or so, tlie bank surpassed all hopes, for Law had 
touched a spring till then but little known in France, the 
potent spring of Credit. But his whole thought, meditated 
on for years, could not be expressed through a private 
bank. The State should be a banker ; it should collect all 
its revenues into a central bank, and attract the money of 



4;hS principles of VOLlTlOAli KCONOMY. 

individuals to il as do])osi(s ; bosidos, the State has [uiblio 
property of vast value, (Ui the strength of which paper 
money can be emitted and made legal tiMider; and thus 
the State, instead of borrowing, should lend to all on easy 
terms and the prohts thus aeeruing would lessen or abol- 
ish taxes. Nm- was this all. The State should also be a 
nuMt'haut; the whole nation sluudd form a commeri'ial 
etuupany, a body of traders, whose eonnnon treasury should 
be the Slate batd<. Couuneree by individuals i-reates 
great wimUIi ; why should not the organi/,ed eounneree of 
a State make everybody rii'h ? The diseounts of the batd<, 
and the prolits o\' the trade, would surely provide for the 
publie serviee without taxation. These vast ideas were 
aetually carried out. Law's bank became the Royal Bank, 
issuing a paper money guaranteed by the State and resting 
back upon the value of all national property. The money 
was receivable in taxes, nominally redeemable in coin, and 
made a legal tender. It actually bore at one time 5 and 
10 % premium over gold and silver. People were anxious 
to exchange their coin for notes. Meanwhile a commer- 
cial company Avas formed in connection with the bank, to 
A\hich the State ceded at first the monopoly of the com- 
merce of Louisiana and of the Canada beaver trade for 
twenty-iive years, aiul the soil of Louisiana forever; under 
the auspices of which New Orleans was foumled, and 
named from the Regent, the patwn of the grand system: 
and in succession, the monopol}* of tobaccos, the rights of 
the Senegal Company, of the East India Company, of the 
China Company, and of the Barbary Company ; until, hav- 
ing almost all the conunerce of France outside of Europe 
in its hands, it entitled itself the Company of the Indies. 
Its shares rose from a par value of 500 francs to 10,000 
francs, more than forty times their value in specie at their 
lirst emission. To support such speculations, which com- 



MONEY. 439 

pletely turned the heads of all classes of the people, the 
amount of paper money reached at ' last the sum of 
3,071,000,000 francs, 833,000,000 more than had been 
legally authorized to be emitted. The collapse of this 
most gigantic bubble of history was terrific. Before the 
close of 1720, the shares of the Company could be bought 
for a louis d'or, or twenty shillings sterling, and the paper 
money of course became worthless. 

The ghost of John Law reappears gibbering and chat- 
tering in some human shape once in a generation or two 
in all civilized countries. In March, 1890, Senator Stan- 
ford of California, himself reputed to be worth $30,000,- 
000, propounded the question in the Senate of the United 
States, whether it were not advisable for the Government 
to issue legal-tender notes on the basis of the real estate 
of the country. His interrogative argumentation implied, 
(1) that there was a scarcity of Money causing great 
hardship to individuals and depression to business, (2) 
that if national bank bills are properly issued on govern- 
ment bonds it is equally proper to base legal tenders on 
real property, (8) that there is no natural and strict limi- 
tation to the amount of Money in a country at any one 
time, and (4) that as far as he knows there may well 
enough be as much money in amount as the estimated 
value of the real estate. All this is John Lawism pure 
and simple. All this utterly ignores the nature of Money 
as a valuable measure of all other Services. It also ignores 
the truth, that an advancing country needs less rather than 
more Money in amount as it advances, because cheques 
and other forms of non-money Credits are constantly 
increasing both absolutely and relatively. It is because 
this Senator's monetary notions seemed to correspond with 
those of a majority of the Senate, that it is perhaps proper 
to give them here a moment's attention. 



440 PRINCIPLES OF POLITICAL ECONOMY. 

These supposed legal-tender notes would be sci-urcd by 
a government lien'on land and buildings, and by the direct 
credit of the Government as well ; just as the national 
bank bills are secured by the bonds of the nation held in 
reserve ior that purpose, and also by the direct image and 
superscription of Csesar u])on every bill. People holding 
mortgagml real estate could accei)t a non-interest bearing 
government lien instead of a G% or 8% private mortgage, 
that is, could pay off their mortgages with the legal ten- 
ders given them by (lie Goverment, the latter taking the 
lien or new mortgage ; and people owning real estate clear 
could, if they chose, execute a perpetual mortgage to the 
Government, that is, give up the fee simple to their lands, 
and receive legfal-tender notes to the full amount in return. 
This would at least relieve the " scarcity " of Money ! 
The volume of national Money at that moment was in 
round numbers $1,400,000,000; the assessed valuation of 
the real property of the country was at the same moment 
at least $1 5,000,000,000 ; so that, on this scheme, perhaps 
110,000,000,000 of additional legal-tender Money could be 
issued ! Here is paternalism and socialism and John Law- 
ism all combined. Here is a Government of strictly lim- 
ited and carefully enumerated powers, under a written 
Constitution as precise as language can make it, containing 
the solemn declaration that all "powers not delegated to 
the United States are reserved to the States respectively 
or to the People," owning or soon to own not only the 
railroads and the telegraphs but also i\\o major part of the 
lands of a free country, and going into the mortgage busi- 
ness on the heroic scale I 

If this honorable Senator and his like-minded colleagues 
were tolerably familiar with the financial history of their 
country, and perhaps they Avere, they would have known 
that this precise scheme had had a practical trial in Rhode 



MONE^. 441 

Island, just before the adoption of the national Constitu- 
tion. The Legislature authorized the issue of $500,000 in 
scrip-money based upon the value of the real estate of the 
farmers of the Colony. The law required a mortgage 
for twice the -amount of scrip-money based upon it, and 
it was therefore supposed the money would be as good as 
gold or better. But somehow or other the merchants of 
the towns could not see the matter in that light. The 
depreciation of the scrip-money began at once, and the 
prices of v/ares ran up in a way that should have set busi- 
ness in active motion, according to all the views of the 
"scarcity" school. It was therefore enacted by the Legis- 
lature, that anybody who refused to accept the scrip at its 
face value should be fined 8500 and lose the right of 
suffrage ! They made it a legal tender ! But business 
refused to boom. The merchants shut up their stores, the 
farmers could not market their crops, and idleness and 
rioting set in all over the State. Then the farmers organ- 
ized a boycott against the towns, and food became scarce. 
Meanwhile the mortgage legal tenders would not pass at 
the best for over 16 cents to the dollar ! There was more 
of " enforcing " legislation, and appeal to the courts, but 
nothing could boost the mortgage-money. The chief result 
of the experiment was, that Rhode Island gained in this 
way the title of " Rogues' Island." 

No matter how good the cause, how patriotic the People, 
an inconvertible paper money is sure to run down at the 
heel. In June, 1775, one week after Bunker Hill, the 
Continental Congress voted to emit 12,000,000 in " Bills 
of Credit" issued on the faith of the "Continent." Eleven 
separate Colonies, New Hampshire and Georgia issuing 
none, began about the same time their revolutionary is- 
sues of the same sort, amounting in all during 1775-83 to 
1209,524,776. The vice of such irredeemable scrip is, 



442 PRINCIPLES OF POLITICAL ECONOMY. 

there is no economical limitation of the Supply. The 
middle of 1777, when Biirgoyne was prosperously advanc- 
inof from Canada towards New York, saw a creneral fall of 
the notes both Continental and Colonial, and of course and 
in consequence a universal rise of the priced of other prod- 
ucts. At the close of that year, the average depreciation 
from silver was not far from 3 to 1 ; at the close of 1778, 
it was not far from G to 1 ; at the end of 1770, it was 
about '28 to 1 ; the Continental press then rested, after 
15:200,000,000 nominally had been put out, but actually 
about $40,000,000 more than that, a usual if m>t universal 
accompaniment of such issues. When the stutT dropped 
out altogether in the spring of 1781, the country found no 
more lack of silver for Money tlian jNIassachusetts had 
found in 1749, when and after she redeemed her outstand- 
ing bills of credit at 11 for 1 in sterling silver, £138,049 
of which, the share falling to her horn the capture of 
Louisburg, was shipped to the Colony in coin, and she 
became for the next 25 years the '" Silver Colon}-."' As- 
suming that only 1^200,000,000 Continental had been issued, 
Thomas Jefferson carefully estimated that the Nation 
realized from them -$36,367,720 in specie value, or 18 9^ of 
the nominal value. 

14. Whether the Money of any Nation be coin or paper 
or both, when once it is in the hands of the People, Gov- 
ernment has properly nothing to say about tlic rate of 
interest at whicJi one person loan/^ this nionei/ to another. 
Usury Laws so-called, prohibiting the lender from taking- 
more than a prescribed rate % for the use of money loaned, 
under penalties sometimes of the entire interest and some- 
times of the entire debt have disfigured the statute-books 
of all Nations and of all the States of this Union. Such 
laws cannot justify themselves for a moment in the light of 
sound principles of Politit-al l^conomy. Their origin may 



MONEY. 443 

be explained by a reference to two false views, now happily 
exploded. 

(a) The laws of Moses forbade to the Israelites the 
taking from one another any interest on money loaned, but 
at the same time it allowed them to take such interest 
freely of strangers ; the permission in the one case going 
to show that there is nothing in the taking of interest that 
is unjust or sinful, and the prohibition in the other being 
readily explainable from the general purpose of the 
municipal regulations of Moses, which was to found an 
agricultural and not a trading commonwealth, in which 
every family was to possess land that could not be perma- 
nently alienated or sold, in which it was a great object to 
maintain the personal independence and equality of these 
families, in which the law for the recovery of debts was 
very summary and effective, lessening the risk of losing 
the principal, and which was to be and was sedulously 
separated in its usages from the surrounding nations. It 
has been well understood for a long time that the municipal 
code of Moses was local and peculiar, not necessarily appli- 
cable at all to the circumstances of other States, and in no 
sense binding on the conscience of legislators ; and yet 
there doubtless sprang from the prohibition referred to a 
prejudice against interest, and this prejudice was perhaps 
deepened in the Middle Ages and onwards by the conduct 
of the Jews themselves, who, in addition to their sin of 
persistently growing rich in spite of the endless disabilities 
laid on them by the people of Europe, always demanded, 
in accordance with the permission of their great lawgiver, 
a good rate per centum of interest from those strangers to 
whom they became money-lenders. The Jews were every- 
where hated, and consequently the usury which they 
practised was hated also. The fundamental absurdity of 
forbidding in trading communities the taking of interest on 



444 PRINCIPLES OF POLITICAL ECONOMY. 

sums loaned to a borrower which he was at liberty to use 
for his own profit, deterred the nations from going to the 
length of prohibition, unless it might be in the case of the 
hated Jews, 'i'hei-e is a clause of Magna Cliarta, interesting 
as showing how eaily the children of Abraham became the 
money-lendeis of Europe, to the effect tluit, during the 
minority of any baron, while his lands are in wardship, no 
debt which lie owes to the Jews shall bear any interest. 

(b) Governments formerly deemed themselves competent 
to determine and fix the <ie7ieral purchasing-power of their 
own money. Even the Constitution of the United States 
uses this language : " to coin money, regulate t/te value 
thereof, and of foreign coins.'" There was formerly, and 
there is still to some extent, a curious and harmful confu- 
sion in the public mind in respect to this term, "the value of 
money." In the only proper sense of the term the value 
of money means its power of purchasing services in general, 
and the value of money is liigh when a given sum of it will 
piu'chase mucli of general services, and low in the contrary 
case ; and a high or low value of money in this true sense 
depends on a very distinct set of causes from those wlii(>h 
determine the high or low rate of interest on money loaned ; 
nevertheless, so long as governments supposed that they 
could regulate the former, it is very natural that they 
should also suppose that they could regulate the latter ; and 
although all intelligent governments have given over the 
idea of being able to regulate the general value of the 
money they furnish to the peo[)le, many of them still adhere 
to the notion, equally false witli the other, that they are 
able to regulate the loanable value, or the rate of interest, 
at least to prevent any more than their prescribed maxi- 
mum rate from being taken. A few simple considerations 
will sufficiently condemn all usury laws. 

(1) It is at once needless and invidious to deny by law 



MONEY. 445 

to money-lenders, who offer just as honorable and useful 
services to society as any other class of men, the privilege 
of selling their service for what it will bring in the market, 
while other men in every department of business are 
allowed to exchange their services on the best terms they 
can make without interference or control. Let us see pre- 
cisely the nature of the transaction when one man loans 
money to another. It is a clear case of value. The lender 
does a service to the borrower, and for this service justly 
demands a compensation. The service is this : The lender 
might himself use the money to gratify his own desires. It 
is his money ; he may use it, as he pleases, for his own 
gratification. Or he may himself employ it productively, 
and, at the end of the period, receive back his principal 
with the customary rate of profit. If he surrenders this 
advantage to the borrower, if he passes over to him the 
right to use this money, say, for a year, he practises what 
we call in Political Economy abstinence. For this absti- 
nence he has a right to claim a reward, precisely as the 
man has a right to claim a reward who foregoes working 
for himself in order to work for another. This reward 
of abstinence is interest. The money-lender foregoes an 
advantage. He performs a service for the borrower ; and, 
therefore, the right to interest stands on just as unassailable 
ground as the right to wages. Moreover, the loanable 
value of money varies under Supply and Demand just like 
other values ; there are always those who want to borrow, 
and always those who want to lend ; both parties must be 
assumed to know their own minds, and to be equally com- 
petent to make their own bargains ; it is a case of mutual 
exchange for a mutual benefit, like all other trade ; and 
the current rate of interest is determined at any one 
time by the actual tree exchanges between borrowers and 
lenders. Now for any government to try to compel a lender 



\\C) IMJlNtMl'I.KS Oh' I'OI.I'PICAI. I'.CONOMY. 

Ii\ lilW l(t lilki- only ('»'(. wluMI Ills llliilH'\ iri Wdllll S, i.S 11 

(]irt)(»t viiiliilioii of lliu I'iglils ol' (tr»»jK*i'lv. It. i,s u I'tuciMo 
aiul pOl'lUtMniis ililtU l\<rt'liiMi with tlm lioodoiii of t'oiit I'llt'tH. 
It. is biistul oil till' fal.so [iicmisi' lliul (lie loaiuiliKi \aliio of 
munoy in uiiifonn, niitl (liiil goverMnituit i.s oompottrnt to 
(l(^ttM'iuiiit< wlial il 1.;. No \ulno in luiifonii. And no fjfcn'- 
(Uiiiiiciit IS ('oni|i<^t('iil to «lt*ttM'iMiiio rsi'ii i\\o iiiii\imiiiu 
prioe of money loaufil, aii\ moK^ tlian die inaMiiiuni [iiidO 
of (lomnKulitiort. 

('^) Usmy liiw.s ait' almost iinifoi iiil\' i//»/v'//<i(r(i'f'(/, hot li 
l>\ till' oovcrniiiciils w liiili iiiakr lliriii ami li\ llu- p('o|ilo 
for whom Ili(\ iii'o iniitlt*. Iiiili'ctl, .siith laws cunuot ho 
onloi'(MMl III a foninuu't'ial (M)iumunil\. (\>mmoii HunscMH 
t>UtnVjL>"tnl hy 11 law wlihh Kspiiics a man to pari with hi.s 
pvojkn'ty at Ions than tho at'tnivl vuhu*; iiml when ctimmon 
Htvnst* is against a law, it stands a slim chaiu'ti i^i ohscM'vaiit'o. 
If tilt', h^^al rale ho six, and ihciirhial worth htM-i^ht, who 
lenila at .six? Not tlio banka. Tiu^y reqnirt* tli^poHihs of 
thtnv (UirttinutM'S, the une of wliose money shall make np to 
the^m the (lillorunee botwium tho lej^'al ami Iht^ artual rale. 
Tim nioiU's of evnsitui are vaviona, hut tin y ai'e aiietpiatt* 
aiul nui\('isal. Mesiilt^s, ^•overnniciits ihcmsi^U cs h.i\(^ 
show II a iiolcw t>t t hv ineonsisttwm\ in this mallei, \\ liiih 
inei(lentall\ provc's ihc iinsoiiiulm'ss of thfir w hoh' act ion. 
While annonneinj^' panis and jHUialtie.s to thos(> w ho tidvi* 
more than a ^iven l•atl^ tliey aii^ ciu'efnl nt^vtw to hind 
themstd\es down to any ^ivt'ii latt^ ( Jon (Mumcnls ai'e 
alway.s more or h<ss horidwer.s, and if nsniy laws are netnvs- 
sary in order to help horniwers in a pinch, Ihei't* (Uiudd to 
be a olau^^e in the oi'^'anie law of e\'ery etuudry, forbidding' 
the government lo pay and it.s lenders to take any niore 
tlun» a t*t*rtain rate pt^r cent. There is no sntdi elansti In 
an\ oiLi'anie law. ( JoverninentH wisely follow the natural 
maiKel, aiul boirow low w hen tlu^\ can, and |i.i\ lii;'h w luiii 



MONEY. 447 

they must. In tlie last moiitlts of Mr. Buchanan's adminis- 
tration, the United States paid 12% on a public loan, and 
could get but little at that. Sauce for the goose is sauce 
for the gander, and if usury laws are good for the citizens, 
some solid reason ought to be rendered why they are not 
good for the government. The truth is, they are not good 
for either, since natural laws are perfectly competent to 
regulate the rate of interest, and do regulate it substan- 
tially in spite of a factitious, impertinent, and mLschief- 
making interference, 

(3) If Usury laws were not disregarded, they would lie 
even worse in their effects than they are now. We must 
suppose that their aim is to aid borrowers, and make it 
easier for them to contract loans. But are borrowers, as a 
class, any more deserving of the fostering care of govern- 
ment than are lenders ? Even if it could make its inter- 
ference effective, as it cannot, is there any reason why 
government, leaving these borrowers to make all other 
bargains, sales, and transfers according to their best skill 
and judgment, should rush to their rescue only when they 
propose to borrow money? If they are competent to do 
their other business for themselves, government pays their 
capacity a poor compliment in undertaking to help them in 
the single matter of making loans ; and the borrowers in 
turn have reason to pray to be delivered from their friends, 
since they, of all others, would be the men especially 
injured if all the lenders obeyed the usury laws. Suppose 
that a borrower is in great need of a loan, and that for 
some reason his credit is now a little weak. Many men 
would be willing to loan him at 9%, which affords a margin 
for the extra risk, but at 6, which we will suppose the max- 
imum allowed by the law, he cannot borrow a dollar, be- 
cause his credit Is not quite equal to the best. If, there- 
fore, the lenders obey the law, he, and such as he, must 



MS nUNOlPLES OF VOUTIOAL ECONOMY. 

tail. Ami In^'ivuso it is unlaw lul u> lako ovtu' (>'/(■ ho will 
Ik^ i>Wigt)tl tt> pivy those who uae willing to viohito the law 
It) or 12, to iH>unHnisato theiu lor the risk inul otlimu of 
MU-h vi*>lutiou, while, \iiuler freedom, he eouhl Iu>iiam\ at S. 
Moreover, if the loanable value of money at the tiim' hv 
aetiially 9, while the law only allows t>, many nien will 
attenipt to nse their i>wu lapital proihu-tively, who wmild 
lUherwise loan it, in order to realize the high ratts ami 
this aetion of theii-s still further restricts the loan-n\arket 
and makes it more lUtVuult to boru)W. If, tluMi, the pur- 
pose of governmeut be to aid bmrowers, m> nunius i-duIiI be 
more nnskilfuUy i-lu>sen for that end than to pass usury laws, 
since sncli laws, so far as they are obeyed, have neiH^ssarily 
the opposite tendency; and even when violateil rcdouud 
to the disadvantage of borrowei-s, sc^ long as the laws them- 
selves are popularly rt^garded as of any legal or moral 

f 01*06. 

In 1716, the Bank of Englaml, as a great loaning institn- 
tion, was exem})ted from the operation of all nsnry laws: 
why the bank only, and not other people as well, tlu^ Act 
of Parliament does not state. In 1867, the State of Massa- 
chnsetts repealed all its nsury laws, thongh t>9{. is tt* be 
nnderstood in the absence of special agreement, anil the 
result has 1h>cu entirely satisfactory to all classes of the 
people. Ivhode Island had done this pre\iously, and Vo\\- 
necticnt did it subscipiently, and both have ex[terienced 
eipvcd satisfaction in the resnlt. Other States will soon 
follow in their lead ; and this relic of ignorance ami preju- 
dice will j>ass away. Aihun Smith hift the \N'i^alth of 
Nations distignrod by the concession that gi^vernments 
might properly enongh pass nsury laws ; but it is gratifying 
to be able to add that he was convinced of his error in 
that by Bentham's hook on Usury, and fully acknowledged 
his conviction in the spirit of a gennine lover of truth. 



MONEY. 449 

We conclude, then, that usury laws are needless, since inter- 
est, like all other prices, will perfectly adjust itself. They 
are disregarded, since lenders will loan or withhold their 
money according to their own keen sense of interest. They 
are pernicious, since they infringe the rights of property, 
and tend to prevent weak borrowers from having a fair 
chance in the market. 

The present writing is at midsummer, 1890 ; and, in 
order to complete the entire discussion so far as this coun- 
try is concerned, it is needful to add, that, between 1878 
(when specie payments were resumed) and 1890, the cir- 
culating medium of all kinds is proven by official statistics 
of the highest authority to have increased from -1805,793,- 
807 to $1,405,018,000, or more than 57 per centum. This 
circulating medium consists of six formal kinds ; namely, 
gold, silver, greenbanks, bank-bills, gold-certificates, and 
silver-certificates. Each of these differs in important 
respects from each of the rest, but all come alike under 
our fundamental classification of Moneys, as either an 
intermediate merchandise or promises to render it. This 
increase is way beyond any increase in the population of 
the country, and way beyond any apparent or proven in- 
crease in the national business ; while at the same time the 
banking facilities of the country, which always spare the 
use of Money by substituting cheques therefor in the whole- 
sale business and in a large share of the retail business also, 
have been increasing in equal measure. The number of 
national banks, especially in the West and South, has been 
multiplying. The use of cheques has been enlarging in 
every commercial community in the land. Yet up to the 
present time all of this vast volume of Money has been 
kept at par with gold, and consequently at the highest 
state of efficiency for commercial purposes. 

What about the immediate future? Science is not 



450 PRINCIPLES OF POLITICAL ECONOMY. 

prophecy except in a quite subordinate sense. Congress 
is loudly threatening at this very moment to more than 
double the enforced monthly coinage of silver dollars at 
the public expense for the sole benefit of a comparatively 
few miners of silver. If this threat be executed upon a 
long-suffering people of tax-payers, who will have no one 
to blame but themselves if they tolerate the outrage, 
Science is willing to venture the prediction, that the 
monetary standard here will cbop from gold to silver 
within a twelvemonth or two ; that general prices will rise 
much beyond the appreciation of money implied in that 
drop, though they will be illusory and gainless ; that pru- 
dent debtors will hold high carnival for a time at the ex- 
pense of their creditors ; that the country will become as 
empty of gold as a contribution-box is of other money 
between Sundays; that foreign trade (soon to be ex- 
plained), already in a sickening decline, under restric- 
tions and prohibitions, will hasten to a practical demise ; 
and that the United States, at once the laughing-stock and 
the victim to the superior intelligence of other nations, will 
come through alternate fever and chills to a position of 
common sense and ultimate recovery. 



FOREIGN TEADE. 451 



CHAPTER VI. 

FOREIGN TRADE. 

Wonderful is the continuity in the growth of any 
great Science, and equally so the persistency of any radical 
error that once gets fairly imbedded within it. As we 
saw fully in the last chapter Money is nothing in the 
world but a convenient, intermediate, equivalent, and 
easily measurable merchandise ; but almost as soon as men 
began to analyze Sales and to generalize from their data, a 
notion nestled way down in their work, that Sales against 
Money were somehow or other different from Sales against 
other merchandise ; and thence sprang up, particularly 
among the Romans, what we have called the Bullion 
Theory. The broad and the true view was held indeed 
from the beginning, and was maintained even among the 
Romans, as we learn from an interesting passage in the 
Roman Law, — " Sahinus and Oassius think Value can 
dwell in another thing than money too^ whence is that which 
was commonly said, Buying and Selling is carried on in the 
exchange of goods, and that view of purchase and sale is very 
old ; but the opinion of Procullus has deservedly prevailed, 
who says, Exchange is a particular kind of transaction dif- 
ferent from Selling.'''' 

Science has indeed sloughed off this old and vital error, 
and most of its sequels ; but Public Opinion in many 
countries is full of it still ; and Legislation, in our own 
country at least, is all thf" time trying or threatening to 



452 PRINCIPLES OF POLITICAL ECONOMY. 

transmute merchandise (say silver) into money, as if that 
could raise its value or change its nature. 

It was but a single step from the Bullion Theory to the 
Mercantile System. If money be somehow different from 
and better than merchandise, then each nation should 
strive to handle its foreign trade so as to get back from 
other nations more money than it renders to them in 
exchange : in other words, each nation must try to sell to 
the rest more goods than it takes goods back in pay, so as 
to have a " balance " come in of gold and silver. How 
natural the transition from Bullionism to Mercantileism ! 
And it was a step of genuine progress too. Goods are 
good, and there is profit in their exchange ; but gold is 
somehow better than goods, and we must manage some- 
how to get a " balance " in that I If this position had 
only been sound, and one nation only been in possession 
of the precious secret, how nicely it might have worked 
for that nation ! But all the leading Nations of Europe 
made the transition from Bullionism to Mercantileism at 
one and the same time, and they vexed and impoverished 
each other for three half-centuries, and went to war with 
each other besides, under tlie double illusion, (1) that gold 
could be practically gotten in that way, and (2) that if 
gotten it were one whit better than the goods for which 
it would have been at once spent. 

Economics as a Science is now free from every taint of 
Mercantileism also, but it lingers on more or less in half- 
informed minds, and in the less-experienced nations ; and 
the system itself merged itself three half-centuries ago 
into another, which is not another, namely, into Protec- 
tionism. If nation A must sell more goods to nation B 
than it takes back in goods, so as to get the coveted 
"balance" in gold from B, Avould it not help that cause 
along to put obstacles in the way of restrictions or pro- 



FOKEIGN TRADE. 453 

hibitions against the introduction of goods from B to A ? 
Less goods, more gold, argues A. A forgets that the same 
mental processes are going forward in B's mind towards 
the same conclusion in relation to A. Now, cogitates A, 
what kind of goods from B had we better restrict or pro- 
hibit ? A, by the way, consists of some millions of indi- 
viduals, some of whom are always on the watch to get 
their axes ground at the government grindstone. What 
kind of goods shall we prohibit from B ? Why, of course, 
those kinds which we are now making or growing. We 
can supply these for ourselves. It does not escape the 
notice of these makers and growers, that the restriction or 
prohibition of similar goods from B will raise the price at 
home of their own goods. Scarce is ever costly. On go 
the restrictions, ostensibly at first in behalf of an imag- 
inary " balance " in gold, which fragile reason soon passes 
out of mind in the presence of a very reai reason for such 
restrictions, namely, artificial high prices for certain do- 
mestic goods, paid indeed by the entire home community 
to the comparatively few makers or growers of the goods 
now "protected," as the current phrase is. Mercantileism 
has passed over into protectionism. The feeble friends of 
a " balance " have now become the strong friends of a 
" monopoly." Personal greed to grow rich at the expense 
of one's own countrymen thus becomes the single or com- 
bined force that puts on and keeps on and piles up the 
sp-called " protective " restrictions and pi:ohibitions. 

Scientifically Protectionism is as dead as Mercantileism 
and Bullionism. There is not an Economist in Christen- 
dom, of any international or even national reputation, who 
now undertakes fairly and squarely by means of analysis 
and induction, to propound or defend a scheme so contrary 
to common sense and common honesty as this is, and 
which, universally applied, would annihilate the commerce 



454 PRINCIPLES OF POLITICAL ECONOMY. 

of the Avorld. But many of the nations are still tinctured 
more or less by the old subtlety, and powerful classes 
within them and specially within the United States, classes 
grown rich and powerful by what is nothing else than 
public plunder, are strenuous and successful advocates, 
not in open discussion and fair debate but by clandestine 
and corrupting methods and combinations, to maintain 
in the light of the nineteenth century an outworn and 
decrepit "something " worthy only of the dark ages. The 
old and foolish cry for a " balance of trade " is merged 
now in the United States into the insane and hateful 
clamor for the destruction of j^ublic trade in the behalf of 
private gain. 

This is the sole reason Avhy we must now undertake a 
careful chapter on Foreign Trade. There is no reason in 
the nature of things, or in the nature of trade, why Foreign 
Commerce should be treated of separately from Domestic 
Commerce. The two are i^recisely alike in all their prin- 
ciples and in all their results. In one as in the other, in 
every case and everywhere, there are (1) two persons, each 
of whom has a Service in his hands to sell against a Ser- 
vice in the hands of the other ; (2) two reciprocal estimates, 
by which each owner concludes that he prefers the Service 
of the other to his own ; (3) two mutual renderings, by 
which each Service comes into the possession, present or 
prospective, of the new owner; and (4) two personal satis- 
factions as the result of all, constituting the ultimate 
motive and the sole reward of Buying and Selling. 

There are two possible differences in certain cases be- 
tween Domestic and Foreign trade, both superficial and but 
barely worth the mention here. Foreign countries engaged 
in trade may be more remote from each other than places 
exchanging products within the same country. The dis- 
tances, liowever, between Bangor selling ice to New Orleans 



FOREIGN TRADE. 455 

for sugar, and Boston selling boots and shoes to San Fran- 
cisco for fruits and wine, are much greater than those 
between Liverpool and St. Petersburg, or those between 
Stockholm and Palermo ; so that, it may be said in gen- 
eral, that the trade between all the European countries 
confronts less distances, and presumably less costs of trans- 
portation, than the trade within the United States. And 
another thing is to be said in this connection: Foreign 
trade as a general rule is conducted by water-routes, and 
domestic trade under the same rule is carried on by land- 
routes ; and, therefore, the costs of transportation by the 
latter are much more expensive. 

The other possible difference is more considerable, and 
considerably more in favor of Foreign as compared with 
Domestic trade. We have learned perfectly already, and 
the point is fundamental, that all trade proceeds on the 
sole basis of a relative Diversity of Advantage as between 
the two parties exchanging. This relative superiority of 
each exchanger over the other at different points depends in 
domestic trade partly upon divergent natural gifts to indi- 
viduals, partly upon their concentration of mind or muscle 
or both on a single class of efforts each, and partly upon 
the use and familiarity in the use of the gratuitous helps 
of Nature aiding that class of efforts. But in foreign trade 
there are commonly some additional grounds of Diversity, 
since the various countries of the earth have received from 
the hands of God a diversity of original gifts, in climate, 
soil, natural productions, position, and opportunity. And 
besides these original international differences, there has 
been developed of course in the history of the inhabitants 
of these countries a diversity of tastes, aptitudes, habits, 
strength, intelligence, and skill to avail themselves of the 
forces of Nature around them. International trade, accord- 
ingly, is somewhat more broadly and firmly based than the 



456 PRINCIPLES OF POLITICAL ECONOMY. 

home trade can be, inasmuch as these international differ- 
ences are apt to be more inherent and less flexible than 
domestic differences bet^yeen individuals ; it is on these 
diversities, original, traditional and acquired, that inter- 
national commerce hangs ; it could never have come into 
existence without them ; and it would cease instantly and 
completely were they to fade out. Men engage in foreign 
trade, — not for the pleasure of it, — but for the sake of 
the mutual gain derivable to both parties ; they desist from 
it so soon as that mutual gain disappears ; and there is no 
gain in au}^ series of exchanges, unless each party has a 
superior power in producing that which is rendered, com- 
pared with his power in producing that Avliich is received. 

With these few preliminaries, we pass now, in the first 
place, to unfold in order the common and universal 
PRINCIPLES OF FOREIGN TRADE. For the sakc of illustrat- 
ing these, we will now take a simple supposed case, a trade 
between England and France in cottons and silks, and 
follow it through clearly to the end. 

1. When will it be mutually profitable for England, 
that is, for certain English merchants, to send cottons to 
France to buy silks with, and for France, that is, for certain 
French traders, to send silks to England to buy cottons 
with? Money and all other commodities except these two, 
silks and cottons, are wholly out of the question now and 
should be wholly out of our minds the while, though for 
simplicity's sake we shall use the denomhiations of money 
for comparing the respective efforts, translating pounds 
and francs into dollars. The answer is easy : the trade 
will be mutually profitable, when efforts bestowed in 
France upon silks will procure through exchange with 
England more of cottons than the same amount of efforts 
bestowed in France upon cottons will produce of cottons 
directly ; and then, when efforts bestowed upon cottons in 



FOREIGN TRADE. 457 

England will procure more of silks through exchange with 
France than the same amount of efforts bestowed in Eng- 
land upon silks will produce of silks directly. It is not a 
question of the absolute cost of either commodity to the 
parties producing it, or of a comparison of those absolute 
costs at all, but a question of the relative cost of that pro- 
duced in either country compared with what would be the 
cost of tlie other commodity were it to be produced in that 
countr}'. So long as there is a difference of relative effi- 
ciency in the production of the two commodities in the 
two countries, so long, setting aside the costs of carriage, 
may there be a profitable exchange of the two. A demand 
in each country for the product of the other is of course 
presupposed in the illustration. 

Suppose now, that Efforts in England on certain cottons 
be gauged at $100, and that Efforts in France on certain 
silks be gauged at $80, and that these finished commodities 
then exchange even-handed against each other : is that a 
losing trade for England and a gainful trade for France ? 
That is more than we can tell yet. That depends upon 
the further decisive question, whether the Efforts gauged 
at $100 if expended in England in the manufacture of silks 
will procure as many and as good silks as the same obtain 
in exchange with France ; and whether the Efforts gauged 
at $80 if expended in France on cottons directly will 
secure as many of them as if expended on silks directly 
and then traded off for cottons. In effect the Frenchmen 
ask. Can we get more and better cottons by working on 
silks and then trading them off for English cottons than 
we can get by equivalent Efforts in working on cottons at 
home? Likewise the Englishmen ask, Can we get more 
and better silks by working on cottons at home and then 
trading with France for silks than we can get by trying to 
make silks directly ? France by climate and soil and habi- 



458 PRINCIPLES OF POLITICAL ECONO-MY. 

tudes is better adapted to silks tlian cottons : England by 
virtue of the same is better adapted to cottons than silks. 

2. How does the Diversity of relative Advantage prac- 
tically work in foreign trade ? Let us suppose that while 
the cottons cost $100 in England, it would cost $120 to 
manufacture there as good silks as can be made in France 
for $80 ; and that while the silks cost but $80 in France, 
it would cost $96 to make cottons there as good as the 
English can make for $100. On this supposition France 
can make both the silks and the cottons at a cheaper 
absolute cost than England can. What of it? Does that 
destroy the motive and the gain of an exchange between 
the countries in these two articles ? Let us see. By an 
exchange with England, France gets for $80 in silks, 
cottons which would otherwise cost her $96, which is a 
handsome gain of 20% ; while England gets for cottons 
costing her $100 silks which would otherwise have cost 
her $120, which is another handsome gain of 20%. Al- 
though France can make each commodity for less absolute 
money than England can make either of them, there is 
a Diversity of relative Advantage ; and, therefore, there 
might be in this case, as there is actually in many such 
cases, a very profitable trade. The efficiency of France in 
making silks relatively to the efficiency of England in 
making silks is in the ratio of 80 to 120, namely, a differ- 
ence of 50% ; while the aptitudes of France in making 
cottons relatively to that of England in making the same 
is only in the ratio of 96 to 100, namely, a difference of 
41^%. So long as England offers in cottons a good market 
for French silks, how utter the folly and large the loss 
of France in going to work to make cottons ! 

In the majority of cases, doubtless, foreign trade takes 
place in articles, in the production of one of which each of 
the respective countries has an absolute advantage over 



FOREIGN TRADE. 459 

the other ; but an every way advantageous trade may be 
carried on in commodities, in the production of both of 
which one nation shall have an absolute superiority over 
the other, provided only that this superiority be relatively 
diverse in the two commodities, as has just been shown. 
This is an effectual answer to the ignorant clamor of some, 
we take it, who make objection to importing articles which 
might be made at home for the same sum of money as 
foreigners expend in making them ; admitted, that they 
might be so made, does it follow that the country import- 
ing them would get them as cheaply by making them 
itself? By no means does that follow. Let no nation, 
then, be in haste to drop a trade, because it thinks it can 
make the goods received in exchange as cheaply as the 
other nation makes them, so long as it has an advantage 
absolute or relative over the other in making the goods 
rendered in exchange ; and when that advantage ceases, it 
may be sure that the trade will drop of itself ; because it 
always takes motives to make the mare go. 

3. What are the extreme limits of the Value of cottons 
and silks in the case supposed, and when will a third nation 
be able to undersell either in the ports of the other ? This 
is the answer : the extreme value of French silks in Eng- 
lish cottons will be 80 and 96 ; they cannot fall below 80 
because they cost the French that to manufacture them ; 
they cannot rise above 96, because at that rate the French 
can make cottons, and there would be no motive, that is, 
no gain, in their exchanging for cottons. Nations, that is 
to say, individuals, Avill never get themselves served at a 
greater effort than that at which they can serve themselves. 
If a given effort does not realize more through exchange 
than it would do directly, then that exchange ceases of 
necessity, as fire goes out for lack of fuel. The extreme 
limits of the value of English cottons in French silks will 



460 PRINCIPLES OF POLITICAL ECONOMY. 

be 100 (lowest) and 120 (highest) for reasons precisely 
similar in the case of the English. Therefore, the highest 
profits possible to both nations under the conditions of the 
trade are 20% each. France would be glad to take the 
cottons at a return of 80 in silks, at which rate her gain 
would be 20%, and she cannot under any circumstances 
offer quite 96, at which rate her gain would disappear. 

No third nation, accordingly, in a trade of silks for 
cottons can expel the French from the English ports, until 
it is prepared to offer nearly 96 (or more) in silks in return 
for English cottons ; that is to say, until its efficiency in 
making silks relatively to that of England in making them 
presents a greater difference than the difference of efficiency 
between France and England in making silks, which is a 
difference of 50%. England would be glad to take the 
silks from France at a return of 100 in cottons, at which 
rate her gain also is 20%, and she cannot possibly offer 
quite 120 in cottons, because at that rate her gain would 
wholly vanish. England could be undersold in the French 
ports, when somebody is ready to offer nearly 120 (or more) 
in cottons against the French silks, whose quantum in the 
exchange may vary from 80 towards 96. Here is the whole 
doctrine of one nation underselling another in the ports of 
a third nation. Silks stand here for sample of all French 
commodities of whatever name and cottons for all English 
goods whatsoever ; and England and France stand in the 
illustration for any and all nationalities. Any nation 
obtains any share or a greater share in the commerce of the 
world solely in virtue of a greater relative efficiency in 
producing something valuable, as compared with some other 
nation's power in producing something else that is valuable. 

4. How does the varying play of International Demand 
affect the value of articles in foreign trade ? The answer 
is clear and easy: if the demand for French silks in Eng- 



FOREIGN TRADE. 461 

land just answers to the demand for English cottons in 
France, so that the silks offered by France just pay for the 
cottons offered by England, then, cost of carriage aside, 
the gains of the trade will be equally divided between the 
two sets of merchants, and each will realize 20% profits, 
because neither will have any motive to lower the value of 
its commodity below its highest value. The Frenchmen 
from their point of view will offer 80 in silks and take 96 
in cottons : the Englishmen from their standpoint will 
offer 100 in cottons and get 120 in silks. Demand and 
Supply are equalized at a point of value most favorable to 
both parties, and one really determined by the relative cost 
of production. 

This case of equalization, though possible, is likely 
rarely to occur in practice. On any terms of exchange 
first offered, there is likely to be a stronger demand in one 
country for the product of the other than in this country 
for the product of that. This will of course lead to a 
change of Value, and a new division of Profits. The 
product for which the demand is less will find its market 
sluggish, and in order to tempt further and brisker ex- 
changes will be compelled to offer more favorable condi- 
tions. He who enters a market in quest of what is more 
in demand with a service which is less in demand, will 
have to lower his terms, or not trade. The equalization 
of Supply and Demand will only be reached in this case, 
by quickening the demand for the commodity now less in 
demand through an offer of better terms in trade. Thus, 
if the demand for French silks in the English ports be 
slack, in comparison with the demand for English cottons 
in France, at the rate of exchange first established, say, 80 
for 96, the French merchant has no resource, if he wishes 
to continue the trade, but to agree to give more silks for 
the same amount of cottons, say, 85 for 96. If this actual 



462 PRINCIPLES OF POLITICAL ECONOMY. 

reduction prove sufficient to cancel the account in cottons 
with the account in silks, then the trade will proceed on 
this new basis for a while, because the equalization of 
demand and supply has been reached through a new valu- 
ation of the two commodities, and there is now conse- 
quently a new division of the profits. France gains less 
than 13% by her trade with England, while England gains 
27% in her trade with France. 

Under these new terms of exchange, it is quite possible 
that silks may again become heavy in reference to cottons, 
and a new decline take place in their relative value. If 
the French are obliged in consequence to offer 90 for 96, 
in order to obtain the cottons they want, their own profits 
will sink to 6%, while the same causes will lift the English 
profits to 35%. If, in any contingency, the French were 
driven by the state of the market to concede something 
near to 96 in silks for 96 in cottons, the trade would cease 
in that case, just as every transaction ceases when the 
motive for it ceases. We must remember of course, that 
the cottons of England are just as likely to become slack 
in reference to silks, as the silks are relative to the cottons ; 
and when this happens, the English dealers will have to 
lower their terms, and thus surrender a larger share of the 
profits to the French. By this ceaseless play of Supply 
and Demand, within the outermost limits drawn by the 
relative Cost of Production at the time, is the Value of 
commodities determined in Foreign Trade ; and no degree 
of complication in the variety of articles, or in circuitous 
exchanges, affects, for substance, these fundamental prin- 
ciples. 

5. What are the causes deciding the exportable articles 
of any nation, and their order of precedence in Export? 
Watch a little at this point, and the true answer will loom 
up steady and certain. If, instead of one article, say 



FOREIGN TRADE. 463 

cottons, England sends two or ten kinds of goods to 
France in payment for silks or wines or whatnot, she will 
of course send in preference that commodity in which her 
own commercial efforts are relatively most efficient, so 
long as the French demand will receive it, because her 
own profits will be the greatest on that; then, when obliged 
to lower terms on that down to the point of relative advan- 
tage at which her next available article stands, she will 
send that next in quantities regulated by the demand for 
that; and so on down to the end of the list of possible 
exportables to France. France is guided as to her export- 
ables to England by precisely the same principles and 
prospects of profit. So of all commercial nations whatso- 
ever. No matter whether the articles be one or many ; no 
matter whether the trade be a direct or indirect trade ; the 
profits in international commerce depend in all cases, first, 
upon the ratio of the cost of what is rendered to what 
would otherwise be the cost of what is received, secondly, 
upon the relative intensity of the two Demands. 

It follows logically and necessarily from all this, that 
what a nation purchases by its exports, it purchases by its 
own most efficient Production, and consequently at the 
cheapest possible rate to itself, and at the highest possible 
profit to its merchants. Under a decent freedom of inter- 
national choice and action, of sale and delivery, only tJiose 
things are ever exported, for the procuring of which a 
nation possesses decided advantages relatively to other 
nations, and relatively to its own advantages in producing 
directly what is received in return ; and hence, the return 
cargoes, no matter what they have cost their original pro- 
ducers, are purchased by this nation as cheaply as if 
they had been produced by its own most advantageously 
expended Effort. This is a wholly impregnable position ; 
and the advocates of restricting and prohibiting Foreign 



464 PEINCIPLES OF POLITICAL ECONOMY. 

Trade are challenged to try their hand a little or a good 
deal (as best suits them) at its bristling defences. 

It follows also from the cUscussion under this head, what 
shallow thinkers are they, who deem it needful that each 
nation should be able " to compete " with other nations in 
every branch of production. Why are they not consist- 
ent enough to apply their favorite catchword, " compete,'^ 
to domestic exchanges also, and require that the clergyman 
shall have artificial and governmental facilities for " corrir 
petin<j'" with the lawyer, the tailor with the blacksmith, 
the farmer with the manufacturer, the publisher with the 
author? Will folks never learn that all Exchanges, 
domestic as well as foreign, hang on relative superiority 
at different points, and that any Nation trying to make its 
success in production equal at all points would be just as 
stupid as an artisan trying to learn and practice all the 
trades at once ? Suppose the said nation to succeed, what 
then ? It would supply its wants at a certain low aver- 
age efficiency of effort ; whereas, by a thorough develop- 
ment of all its own peculiar resources, it could command 
by exchange the products of the whole world at a cost not 
exceeding that of its own most productive and efficient 
Exertion. The precious metals, whether produced at 
home or obtained from other nations by another series 
of exchanges, whether coined or in the form of bullion, 
stand here in the same relations as other commodities, and 
are frequently the most profitable articles that a nation 
can export. In one word, whatever justifies individuals 
in selecting diverse paths of production according to their 
capacities and opportunity, the same (and even more) jus- 
tifies the Nations in fully drawing out their own best capa- 
bilities under the conditions in which God has placed 
them ; and then, exchanging what costs them little for 
what would otherwise cost them much, in enjoying all 



FOEEIGX TKADE. 465 

that the world offers at the least possible expenditure of 
irksome effort. Such wise and wide action promotes the 
common good of all the nations, and makes the best of all 
accessible to all, and arms each with the power of all ; 
while the narrow and senseless policy of drawing into 
one's own shell after putting up barricades against one's 
neighbors, by lessening everywhere the Diversities of rela- 
tive Advantage, so far forth incapacitates all for profitable 
and progressive Exchanges. 

6. How do new improvements in machinery and other 
enhanced facilities of Production in one country affect its 
foreign trade ? A cheering response will be drawn out, if 
we now apply this question to the conditions of our old 
trade in silks and cottons. Suppose France by new 
methods of silk culture to become able to make the silk 
which before cost $80 for 150, cottons in France and silk 
and cottons in England remaining in natural cost as be- 
fore, does France alone gain the entire advantage of the 
increased cheapness of silk ? Wait a minute, and Vv^e will 
see. The production of silk in France is greatly quick- 
ened by the cheaper methods, more is produced, more is 
carried to England to buy cottons with, but at the old rate 
of 80 for 96, the English will not take any more silks, and 
the French who can now abundantly afford it, since their 
nominal 80 is really 50, will offer more silks for 96 in 
cottons, in order to tempt a brisker and broader sale. 
They offer, say, 96 in silks for 96 in cottons, and if that 
reduction of Value of silks in cottons be enough for the 
equalization of the respective Demands, the trade will pro- 
ceed on that basis, at least for a time ; and as there is now 
a larger difference of relative advantage than before, there 
will be, as always in such cases, larger profits to be divided 
between the two parties. The 96 now in silks to the 
English is really only 60 in cost to the French, so that the 



466 PRINCIPLES OF POLITICAL ECONOMY. 

French gain in the trade is largely increased; because 
they now get for what costs them 60 Avhat would other- 
wise cost them 96, a clear gain of 60 %. Before the new 
methods of silk culture were introduced they could gain 
but 20 % at the utmost. 

But the English have also reaped largely from the inge- 
nuity and diligence of their neighbors. Before, they 
gained only 20 % in the exchange at best; but now they 
get for what cost them ilOO that which would otherwise 
cost them #144, a handsome profit of 44 %. Indeed, it 
might easily happen, through the incessant changes in 
International Demand, that even a larger share of the 
benefit of the French improvements should accrue to the 
English than to the French themselves ; the share of 
the French all the while being large, and much larger, 
than if, greedily endeavoring to keep all the benefit, they 
should refuse to trade at all. Thus we reach again from 
another outlook, a grand and universal doctrine of Ex- 
change, that each 'party is benefited by the progress and 
prosperity of the other. Indeed, the only possible way in 
which all nations can share in the thrift and enterprise 
and imjorovements of each other, is through mutual inter- 
national exchanges ; and when each nation sees to it that 
it have a few commodities at least for which there is a 
strong demand among foreigners, and in the production of 
which themselves have a strong superiority, it may rest 
assured that it buys all it buys from abroad, gold included, 
at the cheapest rate to itself, and shares a part of the pros- 
perity of every nation with which it trades. 

7. Which party in foreign trade pays the Costs of Car- 
riage, or do each pay them in equal proportion? It is 
plain, that the aggregate cost of transportation to the for- 
eign markets is just so much added to the Cost of Produc 
tion, and is a deduction of so much from what would 



FOBEIGN TRADE. 467 

otherwise be the whole gain of the Commerce ; but it is 
plainly not true, that each party necessarily pays the whole 
of his own freights ; and, therefore, that the party carry- 
ing bulky articles is at a disadvantage compared with the 
other. He may or may not be at a disadvantage on that 
account. That will depend on the effect of the new ex- 
pense for freight, however divided, on the Demand in each 
country for the product of the other. We will suppose, 
that in the outset England pays the whole cost of carrying 
cottons to France, and France the whole cost of sending 
silks to England ; but as cottons are many times more 
bulky than silks proportionably to value, a larger bill of 
freights would fall of course to England ; and cottons 
would therefore fall in value relatively to silks ; but cot- 
tons and silks have both risen absolutely, that is, with ref- 
erence to any given effort, or with reference to a money 
standard. 

Suppose now that France, instead of 80 for 96, has to 
render 82 for 96 ; and England, instead of 100 for 120, 
now has to give 105 for 120. The French gain in the 
trade is reduced from 20 to nearly 17%, and the English 
gain from 20 to nearly 14% ; but it is by no means cer- 
tain, that the commerce would go on precisely on these 
terms ; the enhanced value of silks might well deaden the 
demand for them in England, more than the relatively less 
enhanced value of cottons in France would affect the 
demand for them. Silks have risen in England 5%, but 
cottons have risen in France only 2|-% ; it is therefore 
very likely that thereafter the demand for cottons will be 
stronger than the demand for silks, and if so, the French 
will have to offer better terms, or, what is the same thing, 
to be obliged to pay a part of the English freights ; so 
that there is nothing in the true state of the case to justify 
tJie conclusion jumped at by some people, that they who 



468 PRINCIPLES OF POLITICAL ECONOMY. 

carry heavy goods are at a disadvantage compared with 
those who carry light goods. That wall depend wholly 
upon the Equation of International Demand as between 
the two kinds of goods. Nothing in the nature of things 
hinders, that each party shall in effect pay the freights of 
the other, or one even really pay the freights of both. 

8. Lastly, what is the effect upon international com- 
merce of the constant play of the Par of Foreign Ex- 
change. This is a point of great importance, that has 
been but little discussed in this connection, because it has 
not been popularly understood or scarcely even popularly 
explained. In the light of the full unfolding of " Credits " 
in our Fourth Chapter, and in the light of these simple 
principles now under discussion, there will be no great 
difficulty to any intelligent reader in fully understanding 
this matter of Foreign Exchange, — a matter never before 
so vital to the commercial interests of the United States 
as now. For the sake of general illustration we will take 
the " Exchange " as between the United States and Great 
Britain, since the same fundamental principles apply as 
between all commercial countries. 

When merchants export goods, say from New York to 
London, or vice versa, they do not wait for their pay till 
the goods be actuall}' marketed abroad, but draw at once 
Bills of Exchange to the amount of the home value of the 
goods on the parties to whom the goods are sent, and then 
put these bills on present sale with brokers or middlemen 
at home. There thus becomes a market or prices current 
in New York for commercial bills drawn on London, and 
similarly a market in London for bills drawn on New York. 
The New York exporter, accordingly, is not certain of 
getting in money the full face of his bill minus interest 
for the time it has to run, because a great many such 
exporters may have thrown their similar bills upon the 



FOREIGN TRADE. 469 

market the same day, which always tends so far forth to 
depress the price of the bills in accordance with an univer- 
sal law of Economics. Scarce is ever costly : plenty is 
ever cheap. 

Who buys these bills when exposed for sale in New 
York? Who wants them? Clearly, only those who have 
commercial debts to pay in London. A bill of exchange 
drawn in Xew York on London is nothing but a debt due 
from somebody in London to anybody whom the drawer 
in Xew York chooses to make the payee. The debtor 
lives in London, and it is every way cheap and convenient 
for all parties, that he settle his debt with a creditor living 
in London. So it happens, that parties in London who 
have sold goods in Xew York and drawn bills on them for 
present payment, expose those bills for sale in London to 
the parties who have debts to pay in Xew York. If now, 
London or those whom London represents in these transac- 
tions, have sold but few goods to Xew York or to those 
whose business is settled in Xew York relatively to the 
amounts sold by Xew York to London, then London bills 
will be relatively scarce as compared with the Xew York 
bills drawn on London. In other words, New York has 
more debts to pay in London than London has in Xew 
York, and, consequently, the parties in London who want 
bills to pay New York debts with, have to buj- them in a 
relatively scarce market. They have to hid for them, as it 
were. The effect of this is always to carry up the price of 
that, for which the buyers are many and the sellers rela- 
tively few. So, under perfectly natural causes, London 
bills on New York come to a premium ; that is to say, the 
London sellers get more than the face of their bills drawn, 
and the trade with Xew York becomes extra profitable to 
them. 

Suppose London bills of Exchange on X^ew York are 



470 1MUNC11M.ES OF I'OLITICAL ECONOMY. 

selling for 101, thus giving 1% extra profit to English 
exporters ; for precisely the same reasons that they are so 
selling, New York Inlls on London are selling in New 
York for 90, thus subtracting 1% from what would otluu- 
wise 1)0 the gains of the New York exporters to England 
und(M- the common ])rincij)les of Foreign Ti'adc. It is 
evident, therefore, that the causes of the course of the 
international Par of Exchange are an essential part of the 
principles of foreign Commerce ; and whatever tends to 
derang(i or n})set the natural course of the Par, as a 
constant or constantly recurring cause, must receive care- 
ful attention in a book like the present. We have begun 
at the very beginning of this matter, and we are now going 
to follow it up to the very end. 

The Diversity of relative advantage in the Production 
of the two commodities exchanged, is the first and chief 
ground of mutual Profit in foreign trade ; the varying 
Intensity of relative Desire on the j)art of each exchanger 
for the pro(hu;t of the other, is the second and secondary 
ground on whi(;h foreign trade must go on ; and the third 
and final difference as between the two parties, which goes 
to make or mar the })rolit of each of them in the trade, is 
the current Price of the Pill of Exchange drawn by each 
creditor on his debtor abroad. It is plain that these three 
things must always be taken into account simultaneously 
by prudent exporters and importers, in order to estimate 
the prospect of a profitable trade then and there ; and it is 
plain also, that one or even two of these three differences 
of relative advantage might fade out for a time, and a 
profitable trade still proceed, ])rovidcd the other two or 
one of these differences were suifi(;iently pronounced. For 
example, to take an extreme case, silks from France might 
still go to England for cottons to the advantage of both 
countries for a time, though ''exchange" were exactly at 



FOP.EIGIS TRADE. 471 

"par " between them and the " demand " for silks were pre- 
cisely met by the " demand " for cottons, on the strength 
of a marked and persistent diversity in relative cost of 
production of the two textiles. 

Here is another of the trinities of Political Economy. 
Here is complication indeed, but a complication regulated 
and beautified by inflexible laws of Nature and the scarcely 
less inflexible laws of human Motives. 

So far the argument has proceeded on the supposition of 
a common standard of Value, say gold, between England 
and France, London and New York, and by implication all 
other commercial countries. Commerce rejoices in, and 
progresses by, a common measure of Values. By an expe- 
rience of 2000 years the world has proven gold to be the 
best international Measure. From a simple comparison of 
the weights of pure metal in the standard coins of the 
nations is estaj^lished a fixed monetary " par " as between 
them. Thus the dollar of the United States contains 23.22 
grains of pure gold, and the English pound sterling con- 
tains 113.001 grains of the same ; consequently, there are 
$4.8665 to the £ sterling, and this is and has been since 
1834 the monetary "par" between the United States and 
Great Britain. Similarly, the par between France and the 
United States is -1^1 to 5 fr. 18 centimes, since the franc is 
19.29 cents gold for gold. The monetary par, accordingly, 
as between any two nations using the gold standard, is a 
matter easily ascertained and kept in mind ; while the 
constantly variable prices current of Bills of Exchange are 
reckoned in and from this monetary par. Thus, if a com- 
mercial bill drawn in New York on London sells for 
14.8665 minus current interest for the time it has to run, 
English " exchange " with us is said to be at " par " ; if it 
sell fo]- more than that, exchange is technically said to be 
" against " us, although the excess in price is just so much 



472 PRINCIPLES OF POLITICAL ECONOMY. 

additional j)rofit to the American exporter ; and if it sell 
for less than that, exchange is said to be in our "/avor," 
although the difference is just so much subtracted from the 
gains of the American exporter. 

The close of the second week in July, 1890, found in 
New York " Sterling exchange dull but firm, with actual 
business at $4.84f for 60-day bills and -14.89 for demand 
bills : the posted rates were |4.85|^ and |4.89|^ respectively." 
Exchange, accordingly, had turned " against " the United 
States, that is to say, American exporters could get a little 
more for their bills on London than the monetary par. 
Under such circumstances it may be cheaper to send the 
gold to liquidate a Bri'^ish debt than to buy bills and send 
them. Just this happened last week : $2,000,000 in gold 
went (mainly under this impulse) from New York to 
London. There is a limit, therefore, to any further rise in 
the price of " exchange," when it reaches in an upward 
direction the then present cost of sending gold to foreign 
creditors. The limit in the downward direction to the 
price of exchange is the last margin of profit to the exporter 
as such. Thus, when the New York exporter can only 
get, say, $4.83 for his sight bill of exchange on London, 
his loss in the trade so far forth is 1 % ; and it may be 
doubtful, whether his possible gains at the other two points, 
namely, relative cost of production and relative intensity 
of demand, will overbalance this certain loss and leave a 
sufficient margin of profit. 

This chance of profit or loss from casual turns in the 
commercial " exchanges " is a very small matter in foreign 
trade in comparison with the other two grounds of possible 
profit or loss. The main thing for every commercial nation 
to see to is, that it have at least a few (the more the better) 
commodities in general use throughout the world, in the 
cost of the production of which it has a relative advantage 



I'OEEIGN TRADE. 473 

ovei' all competitors, and the demand for ivhich by foreigners 
is relatively inteyise and constant. And it will never come 
amiss for any nation with these two crucial advantages to 
keep a sharp watch over a class of its own citizens, lest 
they, shrewdly and greedily, for special reasons of their 
own, get laws passed the result of which can only be to 
increase the costs of production of these fetv exportahles, and 
at the same time lessen the foreign demand for them.. Eter- 
nal VIGILANCE IS THE PRICE OF LIBERTY OF COMMERCE. 

As a general rule for the last half century commercial 
"exchanges" have been "against" Great Britain, that is, 
her exporters have been able to get more than " par " for 
goods sent abroad in the price of the bills drawn on them, 
and her commerce has been profitable to her so far as this 
cause is concerned ; which during the same interval of 
time the " exchanges " have been " in favor " of the United 
States, that is, her exporters have been obliged to sell their 
bills drawn for less than " par," and her commerce so far 
forth has been unprofitable to her. We may only briefly 
indicate here the causes of this state of things. 

(a) Great Britain has been during this period a vast 
loaner of Capital to other countries, and particularly to 
the United States ; while the United States has been a vast 
borrower of Capital, particularly from Great Britain. The 
interest on these loans from Britain, and the principal also 
so far as it has been repaid, has been constantly remitted 
thither in goods for the most part, and bills of exchange 
drawn on these goods have been sold at all ports, and par- 
ticularly at New York; the abundance of these bills has 
tended of course to lower their price at the place of sale, 
and so far forth to heighten in effect the relatively less 
abundant British bills drawn on exports thence ; and the 
creditor country for this reason is apt to sell its bills above 
" par," and the debtor country its bills below par. It makes 



171 rUlNClTLKS OK I'OMTKWL lOCONoMV. 

no (lilTci'ciicc 111 tliis jtoiiil, liowtlu^ hoiiowfd I'iiikIs have 
l)('i!ii iiiNcslcd l)y tlu! l)()ri'<)wiii_L;' ctniiiLiy, since the. interest 
and the |)riiici[)al must be repaid at- sonu; time; ehicilly in 
the manner just indictated. 

(h) With the exception of a (h)/,(Ui or two articles cus- 
toms-taxed I'or sim[)h! revenue, Cireat Hritain in this j)eriod 
has kcjit her ports absolutely open to imp(U'ls from all the 
w'orhl, and of course to all imports from the (luited States, 
which has tended to swell the \olume of imports into tliat 
country, and tlu^ volume of foreie'u bills drawn on them, 
particularly of United Sl;i4,es bills ; while the 1 1 nittul States 
dui'ine' the same time has excluded imports by eustoms- 
taxcs desio'iied hu' that very purpose, to tlu^ nuud)erof over 
4000, and in many eases to a height of tax involvino- pro- 
hibition of import. The Constitution of the I'nited States 
exj)ri'ssly forl)ids customs-taxes upon exports, so that j^'oods 
may indeed e'o uul- frt'tdy, so far as tarifl'-barritu's are eon- 
cerne<l ; but as the only impulse that ever cari'ics ^oods 
out is to <4'et /lack more desirable o-oods in [lay, and as these 
rctnrn-n'oods are greatly rivstritded (W virtually prohibitiul 
by the United States, the (\)nsl it u( ionally-fret I'xports are 
not large enough to hel[^ much in kec^ping down below 
" par " the price of bills of exchange drawn here. It shoidd 
also b(> said thai(Jreat Britain is restraiiu'd in her I'xports 
to the United States by the hitter's legal unwillingness to 
receive them, which tends of course to keep the price of 
bills drawn on the exj)orts she can and does send still more 
above ^'juir." 

(c) The enormous cuistoms-taxes in tlu; United States on 
ship-bnilding mattu'ials and on almost everything else have 
practieallv dcsti-oNcd the ocean mei-chaiil-mariiic of the 
country. The bulk of the I'^rcights, therefore, on what 
foreign commerce there is left to us under the (Miinese-wall 
policy of our ( iovernmcnt, ^ — -the bulk of the fiiMghts both 



i'OEEIGN TRADE. 475 

ways, — has to be paid to foreigners, mostly to the British, 
and these payments too are made in exportable goods, 
which wretched fact (looked at in its causes) increases 
exports hence relatively to imports hither, and of course 
diminishes 2^'>'*^ tanto the current price of mercantile bills 
drawn here. So far as these extra exports to meet freight 
charges are carried to England, they tend to lift there in 
the usual way the price of bills drawn on British exports. 
It is a million pities, no matter from what point of view 
one looks at it, that the present governing classes of this 
country totally misapprehend the Nature of foreign trade, 
and by short-sighted legislation minimize its Benefits to the 
people. 

So far we have been unfolding the causes and courses of 
foreign exchange on the hypothesis, that both the nations 
exchanging employ the same standard in measuring Values. 
While the present paragraphs were in process of composi- 
tion, the President of the United States signed (July 14, 
1890) the so-called " Compromise Silver Bill," which is to 
go into operation after thirty days, and the effect of which 
in the judgment of some of the best economists and finan- 
ciers of the country may he to bring down the national 
measure of Values from the gold dollar to the silver dollar. 
We are bound at this point, tlierefore, to explain the action 
and reaction on the course of the " exchanges," of a mone- 
tary standard lower in general value than the standard 
prevailing in the commercial world. We have all the data 
needful for clearing up this matter completely, at once in 
the inflexible laws of Money and in the actual experience 
of several of the Nations. For example, England has the 
gold standard, and India the silver standard; there is an 
immense commerce between the two countries ; silver is 
merchandise and not money in London, and gold is mer- 
chandise and not money in India ; every cargo, accordingly. 



476 PRINCIPLES OF POLITICAL ECONOMY. 

to and from either has to have its value " changed " through 
the price of current bills into the current money of the 
other country; the price of silver in gold in London (aver- 
age) between 1852 and 1867 was 61^ pence per ounce ; at 60 
pence per ounce the ratio of gold to silver is 1 : 15.716 ; 
between 1875 and 1882 silver drooped (with many 
fluctuations) in the London market, bearing about the 
average of 52^ pence per ounce, which is a ratio with gold 
of 1 : 18 ; during the first half of 1890 the price of silver in 
London was as nearly as possible 43 pence per ounce, 
which is a ratio with gold of 1 : 21.93 ; so that, the prices 
of India bills in London and of London bills in Bombay 
have yielded up to the careful observer all the secrets of 
the " exchanges " between high-standard and low-standard 
countries. 

But we have no need to go out of our own country for 
illustrations of all this. Between May, 1862, and January, 
1879, the " Greenback Dollar " was the measure of current 
Values. It was depreciated every day of that interval 
as comj^ared with the gold dollar, and it fluctuated in the 
comparison more or less nearly every business day. The 
New York importer bought his foreign goods for gold, 
paid the customs-taxes on them in gold, and then sold 
them against greenbacks. How much must he charge for 
his goods in order to make himself whole ? The current 
premium in gold over greenbacks was posted every day, 
and perha[)s every hour, but was tliat a safe guide to 
greenback prices for our importer ? Wholesales are rarely 
for immediate realization in money, and even if they were, 
the money would have to bo reclianged into gold in the 
future for repurchases abroad. In the uncertainty of 
greenback values, the importer must inspire himself in his 
prices to-day against a possible further depreciation next 
week, or next month. In other words, he must speculate 



FOBEIGN TRADE. 477 

in the prospective gold premium. Suppose his industrial 
cycle to be one month. If he sell his foreign goods in 
greenbacks to-day as these stand in comparison with gold, 
and greenbacks fall still lower before the month is out, 
he will lose money in those transactions ; if greenbacks 
should rise in the interval, he would gain money, because 
he could get more gold for them in the next turn. To 
the credit of human nature be it said, that in 9 cases out 
of 10 a merchant will raise the present prices of his goods 
in order to make himself as sure as possible in a case where 
all is uncertain. There can be no reasonable doubt that 
in the fifteen years of depreciated greenback units, retail 
prices to ultimate consumers were lifted 10% above the 
average reckoning of goods in greenbacks from this cause 
alone. 

In regard to exports at that time the facts and principles 
are still clearer. These exports were sold in Europe for 
gold. But the bills of exchange drawn on them were sold 
in New York for greenbacks. Take wheat, for example, 
of which there was a large export in all those years. The 
New York broker or banker in buying these bills was obliged 
to make the conversion from greenbacks to gold. He had to 
estimate as well as he could what the value of greenbacks 
would be when the gold-bill became payable in London. 
In other words, he had to speculate in greenbacks, because 
he had to take the risk of their declining or advancing 
value for an interval of time, say, one month. He would 
not take this risk without virtually making a charge suffi- 
cient in his judgment to cover it, and leave him a good 
profit in any case. This charge came out of the price of 
the wheat ultimately paid to the growers thereof. The 
bill of exchang-e was sold in New York or Chicasro in 
order to get present pay for the farmers who furnished the 
wheat, and present profit for the commission-merchants or 



478 PRINCIPLES OF POLITICAL ECONOMY. 

middlemen. But the bill brought less greenbacks than 
the quoted premium on gold would warrant for that day, 
on account of the risk, the uncertainty, the speculation. 
Therefore, less went to the farmers for their wheat per 
bushel or centner. The masses of the people lose the ini- 
■)ne)ise losses of that depreciated inoney. And during these 
very years also the Government put customs-taxes to a 
then unheard-of height on imports from abroad, not pri- 
marily for the sake of the revenue to come fi-om the taxes, 
but chieliy with a view to keep certain foreign goods out 
of the country altogether, in order that some citizens might 
be able to sell their own product to the rest at artificially 
enhanced prices. Thus the natural market abroad for 
wheat and pork and petroleum and other provisions was 
enormously lessened by the prohibition of imports, — a 
market for products is products in market, — at the same 
moment when the actual prices for products exported were 
still further diminished by the action of depreciated money 
on the par of commercial exchange. 

Our neighboring Ro])ublic of Mexico has had for a long 
time the so-called bi-metallic standard of Money, the same 
as the United States have had.^ When the great fall of 
silver in gold took place in the London market as indicated 
above, gold was rapidly exported from Mexico, and soon 
disappeared from circulation, in accordance with Gresham's 
Law. For many years now the simple silver standard has 
prevailed in Mexico. Its entire working in foreign trade 
through the " exchanges " has been sufficiently demon- 
strated ; and as there is more than a possibility, more even 
than a bare probability, that the United States under the 
law of 1890, and other and earlier extremely complicated 
laws of Money, may drop from bi-metallism to silver mono- 
metallism in the near future, in the way of premonition 

1 See au excellent Essay on Mexican Finance by M. L. Scudde-r, Jr. 



FOREIGN TRADE. 479 

and warning to our own people we may fitly close our 
discussion of foreign " Exchanges " by briefly stating what 
of hazard and disaster under the silver standard is now 
going forward among our neighbors to the southward. 

The effect of estimating Mexican transactions in silver 
money, while all the nations with which they trade esti- 
mate theirs in gold, is seen in an artificial enhancement 
of prices to the Mexicans on all their imports, and an arti- 
ficial depression of prices to them on their exports. Look 
first at imports. There is of course a current discount on 
Mexican silver as compared with the gold in which the 
imported goods are bought. This discount is now over 
20% throughout the commercial world, the London price 
of silver in gold giving the key to that song. But this is 
not all by any means ; the discount is variable from day to 
day and from month to month; in changing his gold prices 
present into silver prices future, the Mexican importers 
must insure themselves. This necessitates a speculation 
in the future of silver. What the risk may be will depend 
somewhat on the activity of the silver market : if silver be 
rapidly fluctuating in price, the importer will add more to 
his silver prices additional to the current premium on 
gold, than if silver be comparatively stable ; but in all 
cases he will add enough to cover all prospective risks. It 
is quite likely that five fer centum is added on the average 
to wholesale prices by Mexican importers on this ground 
alone, which addition with all the usual increments must 
be borne by retail and ultimate prices. 

Now look at Mexican exports. The larger part in value 
of these exports is silver in some form, mostly in the form 
of silver dollars. But these silver dollars are merchandise 
in London, and quite variable in price there, as has already 
been shown ; and bills of exchange drawn on this silver in 
any form, and sold in Mexico to parties remitting gold 



480 



PRINCIPLES OF POLITICAL ECONOMY. 



values to Loudon, are subject to constant depression on 
account of the uncertainty as to the value of silver in gold 
when the bills leach London. It follows from this, that 
the use of the silver standard in Mexico actually depresses 
the value of silver there. By means of the " exchanges " 
both ways, silver tends to be still further depreciated in 
comparison with gold, retail prices of all importables 
enhanced in silver, and the chief exportable (silver) de- 
pressed in value all the while I Truly, the Mexicans are 
between the upper and nether millstones. Poor Money 
never pays. 

In confirmation of this fact that Mexico has not lifted 
the relative value of silver by making it the sole Measure 
of Value, we have the corresjjonding fact that the hercu- 
lean efforts of the United States since 1878 to advance the 
value of silver to a j^arity with that of gold in the legal 
ratio of 1 : 15.98, have issued in the constant relative 
decline of silver here ; and, what is more surprising, in an 
almost constant increase of the yearly production of silver 
here. The following table tells the whole instructive 
story : the figures are official : commercial " fine ounces " 
are .915 of technically " fine " silver. 



Year. 


Production 
(fine ounces). 


Average 
Price. 


Year. 


Production 
(fine ounces). 


Average 
Price. 


1878 


34,900,000 


$1.15 


1884 


37,800,000 


$1.11 


1879 


31,550,000 


1.12 


1885 


39,910,000 


1.06 


1880 


30,320,000 


1.14 


1886 


39,440,000 


.99 


1881 


33,260,000 


1.13 


1887 


41,260,000 


.97 


1882 


36,200,000 


1.13 


1888 


45,780,000 


.93 


1883 


35,730,000 


1.11 









These Seven, then, are the essential Principles of For- 
eign Trade, brought out, it is hoped, as clearly and consec- 
utively as the relative and complicated nature of the 



FOREIGN TRADE. 481 

transactions will allow ; in the light of these Principles it 
is -very clear, that Foreign Trade is just as legitimate as, 
and may be more profitable than, Domestic Trade ; that it 
rests on the same ultimate and unchangeable grounds in 
the constitution of Man, and in the Providential arrange- 
ments of Nature ; that the Profit of it is mutual to both 
parties, or it would never come into being, or, coming into 
being, would cease of itself ; that to prohibit it, or restrict 
it, otherwise than in the interest of Morals, Health, or 
Revenue, must find its justification, if any at all, wholly 
outside the pale of Political Economy ; and that for any 
Government to say to its citizens (of whom Government 
itself is only a Committee), who may wish to render com- 
mercial services to foreigners in order to receive back 
similar services in return, that such services shall neither 
be rendered nor received, is not only to destroy a Gain to 
both parties, but also to interfere losingly with a natural 
and inalienable Right belonging to both. 

If the reader pleases, we will turn now, in the second 
place, to the Methods and Motives in vogue to re- 
strict AND prohibit FOREIGN Trade. The instrunient 
for this purpose is called a Tariff. The origin of the word 
Tariff, its nature and kinds, will throw much light upon 
what has been a vexed question, but is one easily solvable, 
and indeed long ago resolved. 

1. Origin. — When the Moors from Africa conquered 
Spain in the year of our Lord 711, they fortified the south- 
ernmost point of the peninsula where it juts down into the 
Straits of Gibraltar, and by means of their castle and town, 
called in their Barbary language Tarifa, compelled all 
vessels passing through the Straits to stop and to pay to 
these Moorish lords of the castle a certain part (determined 
by themselves) of the value of the cargoes. This pay- 
ment appears to have been blackmail pure and simple ; it 



482 PRINCIPLES OF POLITICAL ECONOMY. 

was certainly extorted by force ; and whether there were 
any pretence of a return-service in the form of promised 
exemption from further pilhige or not, that made no real 
difference in the nature of the transaction. Eleven cen- 
turies later, the United States demonstrated what they 
thought about similar extortions on American commerce 
practised in the same waters by the descendants of these 
same Moors, by despatching Commodore Decatur with a 
strong fleet to Algiers and Tunis and Tripoli ; to which 
piratical states they had already paid in twenty-five years 
two millions of dollars in " tribute " or " presents " for 
exemptions of their Mediterranean commerce from plun- 
der ; who captured the pirate ships and compelled the 
terrified Dey of iVlgiers (and the rest) to renounce all 
claim thereafter to American " tribute " or " presents " of 
any kind. Tlie word Tarifa^ accordingly, in English and 
other modern languages, a word which seems to be very 
dear to some men's hearts, does not appear to have had a 
very respectable origin, though that is not sufficient of 
itself to condemn the thing described by the word. That 
will depend upon its nature and purposes. 

2. Its nature. — There never was one particle of doubt 
on the part of those compelled to pay the Moorish demands 
at Tarifa, or on the part of the United States compelled 
to pay " tribute " to the Algerines for a quarter of a cen- 
tury, about the nature of the transaction. Tlie sign at 
Tarifa was minus, and not plus. To the credit of those 
pirates let it be said, that they never pretended to take 
what they took for the benefit of those from whom they 
took it. They took it for their own benefit. The action 
was abominable, but it was aboveboard. There was no 
deceit and no pretence about it. Both parties knew per- 
fectly what was going on. What was delivered was just 
so much out from what would otherwise have been the 



FOREIGN TRADE. 483 

gains of the voyage. And the truth is, the thing, tariff, is 
always true to the origin of the word, tariff, so far as this, 
that a tariff always takes, and never gives. The only 
phrase a tariff speaks, or can speak, is. Thou shalt pay ! 
There is lying open on the table of the writer at this mo- 
ment a stout volume of 417 pages, printed, with nearly 
as many more interleaved, entitled Tariff Compilation, 
published by the United States Senate in 1884, contain- 
ing every item of all the tariffs passed by Congress from 
1789 to the present time. One may read this volume 
from beginning to the end, or he may read it from the end 
backAvards to the beginning, or he may begin in the middle 
and read both ways, and all he will find between the 
covers is a series of Demands made upon somebody to 
pay something. These demands, of course, are made 
upon, and realized from, the citizens of the United States, 
who are the only people under the authority and juris- 
diction of the Congress. A tariff, then, may be correctly 
defined as a body of takings or taxings levied upon the people 
of any country hy their own government on their exchanges 
with foreigners. How anybody can intelligently suppose 
that a body of taxes, which their own countrymen will 
have to pay, can be so cunningly adjusted as to become to 
them a positively productive agent, a blessing and enrich- 
ment to the payers, a spur to the progress of their Society, 
they may be properl}^ called upon to explain who pretend 
to believe such an absurdity in the nature of things. 

3. Its kinds. — There are two kinds of Tariffs under our 
general definition, very diverse from each other in their 
respective purposes, principles, incidence, and results. 

(1) There is a tariff for Revenue. The sole purpose 
of a revenue tariff as such is to get money by this mode of 
indirect taxation out of the pockets of the People for the 
coffers of the Government, in order to be then expended, 



484 



riClNCllM.lCS Ol' I'OMIMCAI; !';('( )N( )MY. 



l>"ovi'niiiH'iil;ilh , lor (lie ijciici'al IxMii'lil of llutsc who liiive 
paid (lif moiu'v ill lor thai siiinh' ciid. 'Vlw iiiidcMlyiiiii^ 
thouohl ol" this kiiul of laiilT, a taiill' lor rcvcmu^ *>idy, is, 
Ihal (he ( JovcninuMil ilscll" shall t^ct all llic money which 
the |)i'o|)lt' ai'c (thiin't'd lo |)ay iiiidci' llu'sc la\rs, except (lu; 
hare cost of eolKu'liiiL;' (lieiii ; (hat only .s//(7/ (axes shall bo 
Itivied a.t all as will eonie bodily and readily inio (he t;'oiieiul 
Treasui-y loi- public uses ; and no intellim'iil and justico- 
loviin;- people will loiii;- lolerate tarill'-laxes laid wilh any 
odier iiileiit than (he eeononiieal sn[>porl of (heir govern- 
ment, or laid in any (»(her way than shall brino- into tho 
Treasni\' all that is taken out ol (he Teople. A b'e\'enno 
TarilV, thercl'ore, may be properly delined as a ai'/irdidc of 
l(t.ri's Irv'uul on (•(■rl(ii)i liiifiorh't/ (/oodtt irith an t\i/r onli/ to 
Jns( (im/ (/itttrdl la.nttion. 

'riuM'e are three vital |>rineiples on which a revenue tariff 
as such nnist alwavs be le\ ied. (a) As the sole object is 
to get inoiicN foi' (Ik- national treasury, and as nioni'y can 
only be gotten as tlu" roriuyn goods taxed are allowed to 
come in, siudi taxes innst be levied at <t loir rate on each 
artiide (axed, so as lutt to interfere essentially with the 
bringing in of that class of goods w ith a prolit to the im- 
porters, and not a( all to encourage the sinnggling of them 
ill. (It) A varied experience of all (he eonnnercial nations 
has shown, (lia( i( is no( needful in order (o derive a large 
and growing I'evtMine (o la\ cncii low rales on all goods 
imported, but onl\- on certain classes o{ them, so as to 
burden at as l\>w points as possible the siiceessful ongoing 
of inlcinational exchanges; since (he prosperity ever in- 
(hu'i>d by eonuni'reial frei'dom enabU's a ccnnitry to import 
and to pav for in its own ipiieken(>d products vast tpianti- 
ties of the articles subjci'ti'd to the tax, so that large rev- 
enues conu> from low i-atcs levied a( few points. Here we 
lay bare the ground o\ a great income in (he t>\emptiou 



FOREIGN TllADE. 485 

of the bulk of imports from any tax at all. (c) Custom- 
taxes should be laid wliolly or at least mainly on articles 
procured from abroad, and not also produced at home ; 
for otherwise the incidence of the tax on the portion im- 
ported will necessarily raise the price also of that portion 
made or grown at home ; and thus the people will pay more 
money in consequence of the tax than the Government 
gets from the tax in revenue. Three points, then, in a rev- 
enue tariff, namely, low duties on few articles, and these 
wholly forelijn. 

The best modern example of a purely revenue tariff is 
that of Great Britain since 1860. All duties are on one or 
other of the following sixteen items, namely, Beer, Cards, 
Chiccoiy, Chocolate, Cocoa, Coffee, Fruit, Malt, Pickles, 
Plate, Spirits, Spruce, Tea, Tobacco, Vinegar, and Wine. 
Of these, Spruce yielded no revenue in 1880; Cards, Malt, 
Pickles, and Vinegar, yielded in the aggregate that year 
only .£1.491 ; leaving the other eleven items to furnish 
practically all the customs revenue ; but of these Coffee 
and its three substitutes with Beer and Plate, furnished 
only £337.258, so that, the remaining live articles yielded 
£18.915.489, or 98% of the whole income in 1880. In 
other words. Fruit, Spirits, Tea, Tobacco, and Wine, 
brought in all but 2% of the customs-taxes of Great 
Britain in 1880. In 1890, tlie duties on certain Wines 
and Spirits having been lifted, there was a large surplus of 
revenue over the Estimates, which has just been devoted 
to the enlargement of the Navy. Every other European 
commercial country had a deficit that year as compared 
with its Estimates of the year preceding. The figures are 
not now at hand for an exact statement, but there can be 
little reasonable doubt that the " Five Articles " rendered 
at least 98|^% of the tariff-taxes of England last year. If 
there be also some domestic production of any article taxed, 



ISC 



l'i;iN«"in,l'.S (»!'' 1-()|,1|-|('AL I'.CONOMV. 



l)y llii' l>iitisli (;iiilT, :i corrcspomrnii;' cxcist'-liix on lli;iL 
]t;iil |ir()(Iiui'(I 111 li(tiii(', which |);ii( woiihl olhciwisc ho 
niist'cl ill |iricc h\ the (;iiirr-t;i\ (o no ;i(l v:iiit;i<;f dl" (ho 
Kt'vcmii', t'liahh's (hal ( u)\ ci'iiiiu'iil (o l;'*'!. cusily iill 1 hat 
the |H'(i|ih' arc iiiaih" lo \\\\\ in ('()nst'i|iii'iu'o of (ho tarilT-tiix 
on the iiii|iorUMl |iaii. 

{"2) There is a larilT iiiuh'!' I'roleetionisni so-ealU'd. Tho 
I'uliiie' aim in this second kind of tariff is not at- all (o 
ohiaiii iiicoine for ( Jo\ einnieiil in oidci' to |)roinote tlu' 
_L;"eiU'i'al l;oo(I, hut on the eontiars hy MU'ans of heavy tax(!S 
on J'i>rt'i(/ii ai'tieh's to raise the prices of ('orres|»oii(iinj>; 
(/e///('.s7/c oiit>s for tlie e\clusi\t' heiielit of a h'W prodiUHTS 
of these home j^'oods at. tlii' expiMise of all lioiiu^ Imyers of 
them. I f (lu'se s|»eeial (aiiff-laxes l»t> so hin'li and (M»m|)li- 
ealed as to lvee|t out altoi;cl her the foreign ai'licles, and so 
the TreasiiiN reali/.e iiolliiii<;' at all fidiii the taxes on tlu'in, 
so much liie more " protectionist " (ht the\ heconii', and 
so much the het ter pleased are the special domestic pro- 
ducers with tilt" entire mono|)oh of the home market at. 
liu'irowii |irices. Such taxes are prohibitory and protei'- 
(ionisl at the same lime. Pi'ohihilioii is the perfection of 
rroti'ctionism. A rrotect ii>nist 'rarilT, accordingly, may 
he justly deliued as <i (uhIii of tanx /ait/ on spi'^lfini liiifiorted 
(/(>(>«/.s' irit/i (1 siiiijlc ci/c lo ntitic there/*!/ the />n'ees of certain 
home (•(>iii>iioili(/('s. 

The vital points {^\' a protectionist tariff are also Ihroo, 
hnt these are the exact o|>posiles and antipoiK's of the 
three points of a rexeniic tarill, so that it is sel l-i'ont radie- 
lory and impossible to combine in one tariff bill (ho two 
sets of contrary elements. A rcNcnnc taritV w ith iuoidiMital 
protect ionisin is a solecism, (a) If a tariff-rate is to bo 
protiH't ioiiist in character, that is, competent to raise tho 
j>riee oi home |)roducts, it must be ///.///, so as oithor to 
exclude altoL;'t'tlier the eorri'spondiii<;- foreign products, iu 



FOREIGN TRADE. 487 

which ciise thor(3 is no revenue at all, or else to make their 
price by means of tljo duty added reach the point at which 
the liome producers plan to sell their own, in which case 
there will be very little revenue. For instance, when the 
Bessemer steel companies asked in 1870 for two cents a 
pound tariff-tax on foreign steel rails, they called it in terms 
in their "confidential" statement to the Ways and Means 
" exceptional 'protecAion^^ and admitted in so many words 
that they expected to supply the home market entirely, 
and so the Goveinmcnt would get nothing in revenue and 
the people be compelled to pay -11)44.80 e7Ara for their home 
steel rails per ton. It is a little bit of comfort to think, 
that th(!y only o})tained -128 per ton, or 1\ cents per pound, 
which was not quite prohibitory, so that the Government 
got a little revenue on steel rails, and the people paid for 
some years only about double for their rails what they were 
worth in a free market ! To reach its end a protectionist 
tariff-tax must be high of necessity. 

(b) No system of protectionist tariff-taxes can be en- 
tered upon or continued in any country except by means 
of many persons who all alike want their special products 
artificially lifted in price by legislation, and who are 
obliged to combine in order to get and keep what they 
want, so that protectionist taxes on a few things only 
were rarely or never found in a tariff; so contrary are 
such taxes to the common sense and common interests of 
man, tliat only strong combinations of many special inter- 
(ists can begin or maintain them, whence there must be 
mani/ taxes if any under this strongly selfish scheme ; and 
hy an actual count of them by the writer in 1868 there 
were found to be 2317 distinct rates of tax assessed on 
different foreign articles in the Tariff of the United States, 
which was strikingly in contrast with the Revenue Tariff 
of Britain in point of the number of things taxed. So 



488 PRINCIPLES OF POLITICAL ECONOMY. 

needful is log-rolling to the maintenance of protectionism, 
that the passage of the " knit-goods bill " in the summer 
of 1882, for example, was contingent on the contempora- 
neous passage of the famous "River and Harbor bill" of 
that year. 

(c) While Revenue Taxes select by preference things 
wholly imported, Protectionist Taxes are placed of course 
on such foreign goods as are also and especially made, or 
grown at home, otherwise their plain and sole purpose 
would be thwarted, which completes the contrast between 
the two kinds of tariffs. For illustration. Tea and Coffee 
are the best things possible to tax in a tariff for revenue, 
because (1) they are in universal consumption, and (2) 
they are wholly imported, and taxes upon them do not 
raise the price of anything else, and so the Government 
gets all that the people pay under them ; for this very rea- 
son the taxes upon Tea and Coffee, which had yielded for 
years some $20,000,000 of revenue yearly, were thrown off 
in 1872 under protectionist leadership, by the deceptive 
cry of " a free hreahfast table,'''' in the subtle interest of 
commercial bondage ; seeking to give the impression on 
the one hand that everything on the breakfast table was 
to be free, whereas nothing on it or around was to be free 
except the two beverages mentioned, and on the other 
hand that the removal of these two taxes was a great boon 
to the people, whereas the motive for the removal of these 
was to continue on the people burdens tenfold heavier. 
Eighteen years have rolled away since then, and Tea and 
Coffee are still upon the free list ; the incompatibility of 
the two kinds of tariff-taxes is demonstrated in the fact, 
that there has not been for years a single tax primarily for 
revenue in the United States tariff,^ the opposite protec- 
tionist idea having logically wrought itself out there ; and 
1 Publi(x Statement of Professor Taussig of Harvard College. 



FOREIGN TRADE. 489 

the same incompatibility is shown in the British tariff, in 
which there has been no protectionist tax since 1860. 
Each aim logically carried out completely excludes the 
other aim. 

The best and worst specimen of a protectionist tariff 
that the world has ever seen, has been in operation in the 
United States for thirty years, 1861-1890. Its inner his- 
tory is not yet fully known by the public, but enough is 
known to expose the motives and to condemn the action 
of all those, whether constituents or congressmen, who 
knowing what they were doing, contributed to build up 
gradually that mass of incongruities and iniquities, under 
which the entire agricultural class of the country (nearly 
one-half of the people) has become impoverished, by much 
the larger part of the farming lands of the Union covered 
by heavy mortgages, and the ocean-marine of a naturally 
nautical people almost totally destroyed. Attempts more 
or less successful have been made at various times and at 
different points to conceal from the Public the impulses 
really behind the provisions of this tariff, and even the 
amount and the mode of the incidence of its taxes ; many 
of the most protectionist taxes have been complex, com- 
bining upon the same article specific and aclvaloi'em. rates, 
as for instance, upon blankets " 50 cents per pound and 
35 (fc advalorem^^ so that it was difficult or rather impossi- 
ble for the common reader or buyer to ascertain how much 
the tariff-tax really was ; much of the language of the 
tariff-bills has been to the last degree involved and uncer- 
tain, often leading to perplexing disputes and costly litiga- 
tions, and sometimes covering up a half-hidden purpose ; 
importers have been bribed, as it were, in cases of doubtful 
legality, to pay the maximum rates demanded, by the pros- 
pect and promise that the extra sums if ultimately found 
by the courts illegal should be repaid bodily to them and 



490 PRINCIPLES OF POLITICAL ECONOMY. 

not to the people who in the mean time had bought and 
paid for the goods thus enormously enhanced in -price, 
and millions of the people's money have gone back in that 
way to importers and to spies and informers ; a careless 
wording in tariff-descriptions has again and again covered 
goods not designed to be touched, as the lastings and rub- 
ber webbings of the shoemakers to the consternation of 
that great interest, which asked for no protectionist privi- 
lege for itself, but wanted its raw materials at their natural 
price ; and the iron industry of Pennsylvania was bitterly 
angry at Secretary Sherman, who construed a line of the 
tariff relating to cotton ties used at the South more favora- 
bly to the planters than to the iron- workers, although the 
latter were strongly privileged at every point of the tariff 
(even at this) in the teeth of the interests of the con- 
sumers of iron, and the later honorable ambition of the 
Secretary to become a candidate for the Presidency of the 
United States was largely thwarted in consequence by 
the hostility of these miserable and revengeful monopo- 
lists. 

There were fifty descriptions of iron and steel taxed by 
the tariff in 1879, and the average rate of tax on these 
at that time was 11% advalorem, and this was about the 
average rate for the thirty years under the consideration. 
On special articles of prime necessity and universal con- 
sumption, as steel rails, the tax varied under the rate of 
''if'28 per ton put on in 1870 from 85% to 100% advalorem; 
and the purpose of this particular tax Avas plainly seen in 
an average price of domestic steel rails in this country 
$24.44 a ton higher than in England for better rails under 
a longer guarantee for the eleven years, 1870-80; in other 
words, 87% of the tax paid on the smaller and better part 
imported was added to the average price of the larger and 
worser part produced at home during those eleven years. 



FOREIGN TRADE. 491 

That the English rails were better and even regarded as 
cheaper under their guarantee with the 828 a ton added 
to their price, is proven by the fact that the N. Y. Central 
railroad company relaid their tracks with the English rails, 
and were putting them down in Detroit in plain sight of 
simultaneous track-laying across the river in Canada, where 
the same kind of English rails were costing $28 a ton less. 
Every passenger and ton of freight carried by steel-track 
roads in the United States in this interval contributed his 
and its share to make up to the roads this extra price paid 
for steel rails. In 1883 the tariff-tax on steel rails was 
reduced to $17 per ton. That this enormous artificial price 
of iron and steel products under tariff-taxes redounded 
wholly to the profit of the capitalists concerned, and not at 
all to the benefit of the laborers concerned, is shown by the 
Census of 1880, which gives $393 as the average pay for 
that year of the persons employed in the iron and steel 
industries of the country ; and the late Senator Beck of 
Kentucky demonstrated on the floor of the Senate, nemine 
covbtradicente, that only 8.8'% of the value of the products 
of the Bessemer steel industry in 1881 went to the laborers 
employed in it, while 66.9% of the same went to the capi- 
talists as profits. Let the thoughtful reader remember at 
this point, that iron and steel products are only one of an 
indefinite number coddled and privileged by the tariff at 
the expense of the masses of consumers. 

It is impossible to tell exactly hoio much more the people 
of the United States were compelled to pay for their com- 
modities under tariff-taxes, whose ground-thought was to 
compel them to pay more and the more the better, than the 
Treasury received as the direct product of these taxes 
during 1861-90, but an approximation can be made within 
the truth whose results are fitted to startle the minds of all 
good citizens. For convenience' sake only, and because the 



492 PRINCIPLES OF POLITICAL ECONOMY. 

official figures are complete for the shorter period, let us 
take for comparison the twenty years, 1863-82. The 
annual average tariff-income for those 20 years was in 
round numbers -^=158,000, 000 , but the ground-thought of 
the tariff-scheme in all those years was not to get an 
income for Government, but factitious prices for capitalists 
privileged by law; and during the last half of the time 
there were no tariff-taxes on Tea and Coffee, which had 
been before the principal revenue taxes. If, now, we may 
fairly suppose, that for each one foreign article paying a 
tax into the Treasury there were four domestic articles 
raised each in price as much as the foreign article paid 
in customs-tax, then it follows, that the People paid in 
each f»f those 20 years under customs chiefly protectionist, 
$632,000,000, or $12,640,000,000 in all, no penny of which 
went into the Treasury of the United States. That this 
supposition of 4:1 is wholly reasonable, appears partly 
from the known proportion (officially reported) between 
Domestic and Imported as to several leading articles, for 
example, of steel rails in 1880 the Domestic was 20 times 
the Imported, and the People paid 19 times more under 
the tax than the Treasury got ; and on woollen blankets 
in 1881 the Treasury took in less than $2000, w^hile the 
People paid in the extra price of blankets more than 1000 
times that sum that year ; and on iron and steel goods of 
all kinds the average tariff-taxes were about 77% in that 
interval of time and the vast bulk of the iron and steel 
goods consumed was boasted to be of domestic production. 
Let us confirm these striking results by another more 
than reasonable supposition taken from the opposite quar- 
ter. The census of 1870 gave $4,232,000,000 as the value 
of home manufactures for that year, which we may fairly 
take as the average of the 20 years under considera- 
tion ; now, if we throw off one-third of those home 



FOREIGN TRADE. 498 

products as not affected by the tariff at all, and reckon 
that the rest were only raised in price 22%, which was 
only one-half of the average rate of tax on dutiable goods, 
— the average rate on these was officially pronounced in 
1880 at 44%, — then almost precisely the same results will 
follow as before : two-thirds of $4,232,000,000 is 12,880,- 
000,000, and 22% on that sum is $633,600,000. An ac- 
knowledged statistical expert of national reputation, Mr. 
J. S. Moore, calculated from data quite diverse from our 
own, that the People paid $1,000,000,000 in the one year, 
1882, extra to the sum reaching the Treasury that year, 
under protectionist tariff-taxes. We see, then, clearly the 
methods, by which Protectionism reaches its ends, and we 
cannot but conclude, that these methods issue in mon- 
strously unjust burdens on the masses of the People. 

It remains, under this second general head, to examine 
the motives of those men, who have gotten the protectionist 
tariff-taxes put upon the different classes of imported goods 
in this country. Fortunately we have data of unquestion- 
able authority, covering the entire first century of our 
national existence, which prove these two propositions : 
first, that no protectionist tax has ever been PUT ON by our 
Congress from the first day until this day except at the 
instance and under the pressure of the very men personally 
and pecuniarily interested to secure thereby an artificial rise 
of price for their own domestic wares ; and second, that these 
very men have been almost, if not quite, as active and deter- 
mined TO KEEP OFF protectionist taxes on other goods used 
by them in their processes of production, ivhether raw mate- 
rial, machinery, or accessories. These two propositions, 
taken together, demonstrate beyond a cavil the motives of 
the protectionists as a class. Of course, they have had 
their dupes and tools. Out of their own mouths and out 
of their own actions are they to be judged. One hundred 



494 PRINCIPLES OF POLITICAL ECONOMY. 

years is long enough of time in order to display perfectly 
the motives of a prominent and persistent class of men, 
under that Government of the world, whose key-note is 
Exposure, and under that maxim of the world, Actions 
speak louder than words. 

Thomas H. Benton, a United States Senator from Mis- 
souri for 30 years, 1820-50, himself in all that time a 
prominent leader and debater, and always an indefatigable 
investigator, published an Abridgment of the Debates in 
Congress from 1789 to 1856 in 15 large volumes. Each 
important tariff Debate for the first 70 years of our national 
history is distinctly brought out in these volumes, and the 
impulses and motives behind each leading speaker may be 
discerned as clear as day. The present writer has been 
over these debates with great care, and has mastered them 
in their substance and motives on both sides ; and he has 
been besides a deeply interested reader and excerptor of 
all Congressional tariff-debates for more than 30 years 
just past; and now invites his present readers to take a 
cursory glance over this broad field, and satisfy themselves 
as to the motives personal and associate of the protectionist 
debaters from the first to the present time. 

Because the new Constitution prescribed that " all bills 
for raising revenue shall originate in the House of Repre- 
sentatives^''' the main debates on the first tariff-act of 1789 
were in that branch of the national Legislature. Nothing 
could be simpler or sounder than the basis of the new 
tariff as proposed by Madison, the acknowledged leader 
in the debates, namely, the so-called Revenue S3^stem of 
1783, as adopted by the old Congress, and ratified by all 
the States in succession, excepting New York. That was, 
small specific taxes on eight articles, namely. Wines, 
Spirits, Tea, Coffee, Cocoa, Molasses, Sugar, and Pepper. 
In the earlier part of the discussion no other end than 



FOREIGN TEADE. 495 

revenue was mentioned in connection with the taxes. 
Madison said: "Z oton myself the friend of a very free 
system of commerce : if industry and labor are left to take 
their own course they loill generally he directed to those 
objects which are most productive, and that in a manner 
more certain and direct than the wisdom of the most en- 
lighteyied legislature could point out ; nor do I believe that 
the national interest is more promoted by such legislative 
directions than the interests of the individuals concerned,^'' 
It is significant of after times that the first word in this 
debate respecting any other word than revenue through 
the tariff-taxes came from Pennsylvania ; and equally 
significant, that the next and strongest words for some- 
thing else than revenue came from Massachusetts ; and 
more significant than either was the junction of the two 
States in influence and votes when it came to the final 
adjustment of the actual tariff-rates. Pennsylvania had 
already gotten well forward in the manufacture of iron 
and steel products, particularly of nails, and wanted " en- 
couragement,''' that is, protectionist taxes upon the foreign 
products corresponding. Said Hartley of Pennsylvania : 
" I am, therefore sorry that gentlemen seem to fix their mind 
to so early a period as 1783 ; for we very tvell know our 
circumstances are much changed since that time : we had 
then but few manufactures amoyig us, and the vast quantities 
of goods that flotved in upion us from Europe at the conclu- 
sion of the war rendered those few almost useless ; since 
then we have been forced by necessity, and various other 
causes, to increase our domestic manufactures to such a 
degree as to be able to futmish some in sufficient quantity 
to answer the consumption of the whole Union, while others 
are daily grotving into importance. Our stock of materials 
is, in many instances, equal to the greatest demand, and our 
artisans sufficient to work them up even for exportation. In 



49(5 VRiNcirLEs of folitical economy. 

these cases, I take it to be the ji)oIiei/ of evert/ enlii/hteneii 
nation to (jive their manufactures that degree of encouraiie- 
ment uecessari/ to perfect them, without oppressing other 
parts of the communiti/T 

Massaohusetts was not a whit bohiiul Ponnsylvania in 
asking for discn'iminatious in hor own favor at the obvious 
expense of the rest of the eonntry. ^sew England rum 
was made out of molasses, and Jamaiea rum was its eom- 
petitor in public favor; distillei-s in the neighborhood of 
Boston and Salem wanted therefore a ///(/// tax on Jamaiea 
rum, and a low one on the imported molasses used in the 
home manufaeture. ^Madison was willing to discourage 
rum-making and rum-selling both in the interest of temper- 
ance, and proposed a tax of eight cents a gallon on molasses 
and tifteen cents on Jamaica rum, which called out this in- 
dignant burst from Goodhue of Massachusetts : " Molasses 
is a raw material, essentialli/ reipiisite for the weil-lwing of a 
very extensive and valuable manufacture. It ought likewise 
to be considered a necessarg of life. In the Uastern States 
it enters into the diet of the poorer classes of people, who 
are, from the decai/ of trade and other adventitious circum- 
stances, total I g unable to bear such a freight as a tax of eight 
cents would be upon them. 1 cannot consent to allow more 
than two cents. Massachusetts imports from 30,000 ^0 40,000 
hogsheads annuallg, more than all the other States together. 
Fifteen cents, the sum laid on Jamaica spirits, is about one- 
third part of its value : now eight cents on molasses is con- 
siderably more : the former is an article of luxurg, therefore 
that dutg mag not be improper ; but the latter cannot be said 
to partake of that qualifg in the substance, and when manu- 
factured into rum is no more a luxurg than Jamaica spirits.'' 

The Senate in the First Congress sat with closed doors, 
and was thus more open than the House to the influence 
of interested petitions which soon began to pour in udou 



FOREIGN TRADE. 497 

it, asking for amendments to the House bill in the line of 
protectionism ; and through such amendments the Massa- 
chusetts and Pennsylvania members, with a few other 
members similarly inclined, partially carried their points 
into the first Tariff. The tax on molasses was fixed at 2^ 
cents a gallon, and on Jamaica rum at ten cents a gallon ; 
nails were taxed one cent jjer pound imported; and an 
accepted Senate amendment classed Hemp and Cotton 
together as two products of the soil worth " encouraging," 
hemp at -| of a cent per pound and cotton at three cents a 
pound ; yet hemp constantly " encouraged " to this day at 
the cost of ship building and other industries has never risen 
to the rank of a staple. Coal was also taxed protection- 
istly, at the instance of Virginia, then the coal-producing 
State. Note the three universal features of Protectionism 
in the original application of it to the United States; 
(1) the purely selfish call to tax one's neighbor in order 
to lift the price of one's own wares (nails), (2) the equally 
selfish resistance to such a tax as falls on one's raw mate- 
rials (molasses), and (3) the final log-rolling among those 
legally privileged at different points (Massachusetts and 
Pennsylvania and Virginia). 

Take a second instance of the same general point from our 
second Tariff, passed in 1816. Two Massachusetts young 
men, Lowell and Jackson, brothers-in-law, had started a 
modern cotton-mill in Waltham, near Boston, in 1813, and 
constructed in it, with the help of an ingenious mechanic 
named Moody, a power-loom ; as soon as the war with Eng- 
land was over, and Congress in consequence began to talk 
about a new Tariff, Lowell went to Washington, and by 
personal influence with Mr. Calhoun, then the leading man 
in the House, with Mr. Lowndes his colleague from South 
Carolina, who afterwards reported the new bill, and with 
other members of Congress, contributed largely to the intro- 



498 PRINCIPLES OF POLITICAL ECONOMY. 

ductioii into this Tariff of protectionist features towards 
cottons. Lowell struck strong at the start. He repre- 
sented (doubtless with entire honesty) to Calhoun and 
Lowndes, both from a cotton-planting State, tliat a domes- 
tic market for raw cotton in additto)i to the foreign market 
would raise the price of that agricultural staple. Both 
were easily convinced that such would be the case, although 
both found ample reasons afterwards for altering their 
opinion in that regard. Lowell, the " cotton city " on the 
Merrimack, founded in 1821, was named from the success- 
ftd lobbyist of 181G. Lowndes reported a tax on cottons 
of 33^% advalorem, with a proviso that all cottons should 
be assumed at the c\istom-house to have cost at least 25 cents 
to the square yard. This was tlie famous principle of the 
'■'■minimum,'''' a, device to increase the protectionism with- 
out seeming to do so. 

The debate on this feature of the bill was a marvel in 
many ways. The penetrating reader will not be at a loss 
for the reason of this. John Randolph moved to strike 
out from the bill the proviso for the cotton minimum, and 
argued at some length "■against the propriety of promoting 
the manufacturing establishments to the extent and in the 
manner proposed by the bill, and against laying up 8000 
tons of shipping noiv employed in the East India trade, and 
levying an immense tax on one portion of the community to 
put money into the pockets of another.'^ Calhoun rejoined: 
"• Until the debate assumed this new form, he had determined 
to be silent ; participating, as he largely did, in that general 
anxiety which is felt, after so long and laborious a session, to 
return to the bosom of our families. It has been objected to 
that bill, that it will injure our marine, and consequently 
impair our naval strength, //ow far it is fairly liable to 
this charge, he was not prepared to say. He hoped and 
believed it tcould not, at least to any alarming extent, have 



FOREIGN TRADE. 499 

that effect immediately ; and he firmly believed that its last- 
ing operation would he highly beneficial to our commerce. 
The trade to the East Indies would certainly be much 
affected ; but it loas stated in debate that the whole of that 
trade employed but six hundred sailors. The cotton and 
tvoollen manufactures are not to he introduced: they are 
already introduced to a great extent ; freeing us entirely 
from the hazards., and in a great measure., the sacrifices 
experienced in giving the capital of the country a new direc- 
tion. The restrictive measures and the war., though not 
intended for that purpose., have by the necessary operation of 
things turned a large amount of capital to these new branches 
of industry. But it will no doubt be said., if they are so far 
established., and if the situation of the country he so favor- 
able to their growth, where is the necessity of affording them 
protection^ It is to put them beyond the reach of contin- 
gency.^' 

Thus Calhoun goes on, making the greatest mistake of 
his life which he regretted to his dying day, to give 
plausible reasons for his insistence and his vote, but he 
does not even touch upon the real reason. If he had 
detailed his conversations with Lowell, it would have 
been far more to the point. His motive, like that of 
every other man in Congress who has urged protectionist 
schemes, was the special benefit of some of his constitu- 
ents at the more or less concealed expense of their coun- 
trymen. But, as always happens when men really act 
from unavowed motives, he was suspected of having them ; 
and he guarded himself: "^e was no manufacturer; he 
was not from that portion of the country supposed to be 
peculiarly interested. Coming as he did from the South, 
and having in common with his immediate constituents, no 
interest but in the cultivation of the soil, in selling its prod- 
ucts high, and buying cheap the wants and conveniences of 



600 PRINCIPLES OF POLITICAL ECONOMY. 

life^ no motives could he attributed to him but such as were 
disinterested J" But Randolph still charged, that the dis- 
cussion showed " a strange and mysterious connection " 
between this measure and the National Bank bill which 
had just passed. This was a loophole of escape for Cal- 
houn : " he ivished merely to reply to the insinuation of a 
mysterious connection between this bill and that to establish 
the Bank. He denied any improper or mifair understand- 
iny, and coidd challenge the House tc support the charged 

A beautiful instance of the confession, which all protec- 
tionists make in action when it comes to the pinch, that 
a rise of price is at once the object and the result of pro- 
tectionist tariff-taxes, is found in the awkward attempt 
of Congress to relieve indirectly the burnt-out citizens of 
Chicago in 1871. The great fire occurred in October of 
that year. In the winter following a bit of legislation 
took place in Congress in consequence, which is too in- 
structive to be passed by without notice, because in all 
the parts of it taken together we have in epitome the 
motives and the processes and the prompt confessions of 
Protectionism. Contributions were taken up all over the 
country, and even in Europe, for the relief of the people 
of Chicago. As Whittier puts it : 

" From East, from West, from South and North, 
The messages of love shot forth, 
And, underneath the severing wave. 
The world, full-handed, reached to save." 

But cannot Congress do something to help rebuild the 
ruined city? April 5, 1872, President Grant set his signa- 
ture to a congressional bill enacted to last one year only, 
and for the express benefit of Chicago alone, to exe7npt all 
building materials except lumber from the operation of tariff- 
taxes. As a public and emphatic confession on the part of 



FOREIGN TRADE. 601 

Congress, that tariff-taxes raise the prices of protectionist 
goods, and that the remission of such taxes lowers the 
prices of such goods and becomes a boon to the buyers, all 
this is refreshing and satisfactory ; but why was lumber^ 
by much the most important of the building materials 
needed, excepted from the bounty of the legislators to the 
unfortunates of Chicago ? The bill applied to Chicago 
only, and was to last but one year at best ! The bill as 
drawn and debated included all building materials. Why 
was lumber excepted? Because, while the bill was still 
pending, a special car filled with the lumber-lords of 
Michigan and Wisconsin was rolled to Washington in 
haste, and the potent influence of these men was sufficient 
to cause the express exemption of their product from the 
intended cheapening (for one year) of the building mate- 
rials for desolated Chicago. The brief official record of 
this curious transaction will be found in U. S. Statutes for 
1872, page 33. It needs no comment but the obvious one, 
that here is the vdiole matter of protectionism in a nut- 
shell ; — the motive, the open confession, the greedy lobby 
determined to thrive on their neighbors' misfortunes, the 
inhumanity, the spirit of monopoly, the inf ernalism, — a 
game of grab from beginning to end ! 

Shameless as the protectionist debates in Congress have 
been from the start, in letting it be plainly seen, that the 
sole motive of their efforts is an artificial rise of price in 
certain goods which their fellow-citizens would be com- 
pelled under the law to pay, the debate in the House of 
Representatives in the spring of 1883 was by far the most 
shameless and avowed in this respect of any that ever 
transpired there. In the last days of that debate all pre- 
tence of any action for the good of the country at large 
dropped utterly out of the discourse : the old fallacies and 
disguises and subterfuges of " home markets " and " higher 



602 PRINCIPLES OF POLITICAL ECONOMY. 

wages " and " commercial independence " were no longer 
put forward even in word under the clash of selfish inter- 
ests, and in the eagerness to secure for their wares a fac- 
titious price to be paid by their countrymen ; proposed 
reductions in tariff-taxes were fought off by these men, 
and in many instances still higher taxes were urged on, 
under their unabashed avowal that, unless home prices 
were thus stiffened and uplifted, they could not make and 
sell their wares at a profit ; one honorable member from 
New Jersey brought his pottery wares upon the floor of 
the House, and tried to demonstrate to his fellow-members 
that, unless these very goods were hoisted in price, by 
taxes on his foreign competitors, he could no longer tread 
his clay and work his wheels with profit to himself: in 
other words, he and others like-circumstanced, by lobbying 
and log-rolling, persuaded Congress to pass so-called laws 
to compel their countrymen to hire them to carry on tvhat 
they publicly alleged were unprojitahle branches of business. 
By their own confession, the only trouble with their goods 
was, that they were inferior in quality and superior in 
price to otherwise similar goods in the open market of the 
world. 

One more, and the latest instance, out of hundreds 
equally accessible and equally conclusive, will suflice for a 
demonstration of the point in hand. In the early summer 
of 1890, a Massachusetts member of the House of Repre- 
sentatives, an avowed protectionist from an alleged protec- 
tionist district of that State, waxed so warm in arguing 
against a protectionist tax upon a certain raw material 
useful in tanning leather, that he took off his coat and 
proceeded in his shirt-sleeves i One would suppose, both 
from his zeal and the tenor of his speech, that he was a 
veritable free-trader ! But no ! He had argued a hundred 
times that protectionist taxes (to be paid by other people) 



FOREIGN TRADE. 503 

were a good thing for the payers, and enriched the whole 
country ; but lo ! it turned out in this case that he himself 
was a buyer of this particular material, and lo ! he did not 
relish the tax-lifted prices caused by the tariff. They were 
all wrong. They must be fought off at all hazards, even 
in the hottest weather ! This is a very respectable gentle- 
man, well thought of by his neighbors in Worcester 
County, but his protectionism is not respectable. It is 
chameleon-colored. It is one thing in one light, and an 
opposite thing in another light. Indeed, the protectionist 
congressman has never yet been discovered in this coun- 
try, who was fond of paying protectionist taxes himself, or 
willing that his immediate and powerful constituents 
should pay them ! It has been proven many times over, 
that the very strongest friends of a Free List in this broad 
land have been certain so-called protectionist Senators and 
Representatives. 

From these few sample-examples, the reader of penetra- 
tion will perceive, that there is no element of logical 
coherence or moral decency or even outward respectability 
in Protectionism. There is no principle in it or of it. It 
does not hang together. It walks in darkness and not in 
light. It is full of deceit. It is fond of disguises. It is 
contrary to common sense. It offends justice. Morality 
frowns at it. It has no basis in any Science, least of all in 
the Science of Buying and Selling, whose best impulses it 
feebly tries to deny, and whose largest and most innocent 
gains it fain would destroy. 

Next in order we will examine, in the third place, a few 
of the chief Fallacies and Falsehoods, by which Pro- 
tectionism has striven to ffive itself a standinof in the 
commercial world. In our day at least, these are, without 
exception, afterthoughts and subterfuges. We have just 
seen under the last head the real impulses, plain as a moun- 



504 rKINCIPLES OF POLITICAL I'^CONOMY. 

tain peak, -wliieli put on and keep on and pile up these taxes 
on the masses of the people ; bnt these real motives will 
not bear inspeetion and pnblie criticism, and so plausible 
reasons nuist be found or at least propounded, which shall 
do the double duty of covering the real reasons, and of 
seeming to convince while they i)ul3^ perplex the victims 
o\' the scheme. These ])lausibilities we }>ropose now to 
analy/.e and to expose. The test of any alleged truth is its 
harmony with acknowledged truths: Ihe test of any pro- 
poniuli'd error is its incmigruity with and I'ontradiction of 
acknowledged truths. On a logical comparison, therefore, 
of any false proposition with any known truth, the latter 
will be sure to lling ont its Hat contradiction and lloor the 
falsehood forever, rrotectionism contradicts economic 
truths at practically innumerable points, bnt we will now 
watch the collisions at the principal points onl3^ 

Fallacy A : that a nation mail Htill acU. toforeupi nations 
while prohihitiiiij the hut/iiuj from them. Protectionism is 
nudtiplied prohibitions on the buying of goods from 
foreisfuers. Between four and five thousand of such 
prohibitions deface our national Statute-book at the present 
moment. All the while, however, the assnmption under- 
lies this polit-y, and the express proposititm is often heard 
in dilTerent forms along the lines, that our citizens may still 
sell their products to bnvigners, nevertheless. England 
has (/ot to hill/ our cotton or starve: the Continent is eom- 
peJlcJ to lake our piu'k prodncts, for they are the cdeapest 
food in the world : lunv can (^hina or India help taking the 
silver from our mines? Softly. Buying and selling from 
the very nature of it is never eonipnlsor}', but always 
voluntary. A commercial service is never rendered but in 
plain view of a return-service to be received. The mental 
estimation of each bnyiT is eouehed in the very terms of 
what is offered in relnrn bv each seller. Bnving and 



FOEEIGN" TRADE. 505 

selling from its inmost nature is always one act of two 
persons acting conjointly and inseparably to the advantage 
of each. How, then, can the individuals of one country 
sell anything to individuals of another country without at 
the same instant huyinrj of these in return? The act of 
selling is just as much buying as it is selling, and the act 
of buying is just as much selling as it is buying. As we 
have abundantly seen already, the introduction of Money 
as a medium in the transaction makes no difference in the 
nature of the exchange of commodities internationally. 
The postulate, therefore, that the people of one country 
can continue to sell products to the people of another while 
refusing to take their products of some kind in return, is 
an absurdity in the nature of things and an impossibility in 
the world of facts. A market for products is products in 
market. 

All known facts confirm this irrefragable reasoning, and 
discredit utterly the fallacy in hand. When France and 
Germany a few years ago gave back to our protectionists a 
dose of their own medicine, and prohibited American pork- 
products, ostensibly because they feared the trichinse but 
really to cajole their own farmers under the plea of protec- 
tionism, their brethren in the faith have made up all sorts 
of faces ever since, have wound up the respective diplo- 
matic clocks to strike twelve against the too presumptu- 
ous countries which ventured to restrict American products 
in their ports, have protested and proclaimed. What is 
the matter ? Is not sauce for the goose sauce for the gander 
also ? Have not American protectionists shut out French 
and German products 100 : 1 under the same plea now 
used on the Continent? '•'•But we cannot sell our products 
abroad" cry the angered Western farmers. Of course they 
cannot, because restrictions on buying are restrictions on 
selling ; and additional restrictions of the same kind put 



506 PRINCIPLES OF POLITICAL KCONOMV. 

cm French and German bnying are of course still further 
restrictions on American selling. And the farmers are, as 
usual, the victims both ways. 

To hear an ordinary ^Vmerican protectionist talk, one 
would think that Great Britain is the enemy of mankind 
for admitting into her ports practicall}- without let or hin- 
drance the goods of all the world. Free Trade Enr/Iand! 
Let us look a moment. England has to pay for all these 
goods received from all quarters. In what does she pay? 
In her own goods, of course. What is her market? The 
whole world. Is that market ever slack on the whole ? 
Never. Is she ever flooded with cheap goods ? The more 
she buys the more she sells of necessity. How much does 
she sell per capita of her people ? More than twice as 
much as the United States sells per capita. How can she 
sell so much of her own stuff? Because she buys freely 
other stuff from all the world. What are the limits to her 
capacity to sell her own goods to foreignei-s? Precisely 
the limits of her willingness to take in pay other goods 
from foreigners. Cannot these limits be overpassed in 
either direction ? By no possibility : when people can no 
longer pa}- for what they buy, the buying ceases : and 
when they are not permitted to take their pay for what 
they sell, the selling ceases. Is this free trade profitable 
to Great Britain? Immensely so in ever}- way. Wliither 
has it carried up her ocean-marine ? To the topmost notch. 
Is capital abundant in England in bulk, and are its loana- 
ble rates low? England is the richest country in the 
world, and all nations resort thither to buy. What is the 
source of this vast volume of Capital ? The only source 
of Capital is savings from the natural gains of Buying and 
Sellinof. 

Is Great Britain willing to take in goods from the United 
States ? Certainly, under the universal conditions of taking 



FOREIGN TRADE. 507 

in foreign goods at all. Is the United States willing to 
take in British goods in pay for her own goods exported 
thither? She is not, except over protectionist barriers 
averaging 47%. Is it a good tiling for the United States, 
that Great Britain takes in her goods freely ? We should 
suppose so ! Does the former already sell to the latter and 
through the latter more goods than to all the world besides ? 
Much more. Could this profitable trade be easily increased? 
It could be quadrupled in a very short time. How ? By 
simply according to our citizens a decent liberty, which is 
their inalienable right. Would the United States like it to 
be commercially treated by Britain exactly as the former 
treats the latter ? It would bankrupt the United States in 
six months. Would our protectionists like it ? It would 
make them howl. Is it the commercial salvation of the 
United States that Britain is immovably for free trade with 
her and the rest of the world? Nothing else saves her 
from commercial ruin. Can the ghost of a reason be given, 
commercial or other, why the United States should con- 
tinue to fling double fists into the face of British goods 
seeking a market and so making one ? Not a shadow of a 
shade of a good reason was ever given for such folly, or 
ever can be. 

It is more than a pleasure to acknowledge at this point 
the great service done by James G> Blaine, Secretary of 
State, during the summer of 1890, to Country and Com- 
merce, by his courageous avowal contrary to his own per- 
sonal record and to the vehement behest of his party, that 
the economic principle just enunciated is sound, and should 
be at once applied by the United States in connection with 
all the countries of Latin America. In a letter to the 
Senate on the results of the recent Pan-American Confer- 
ence, he said : " The Conference believed that ivhile great 
profit would come to all the countries, if reciprocity treaties 



508 PRINCIPLES OF POLITICAL ECONOMY. 

could he adopted^ the United States would be hy far the 
greatest gainer^ The principle of reciprocity is the prin- 
ciple of free trade applied by both parties to the trade. It 
is the sound principle, that goods buy goods and pay for 
goods at the same instant to a mutual profit. Manifold 
reiterations of this principle came from the Secretary that 
summer, especially in vigorous protestations against the 
McKinley tariff-bill then pending, alleging with truth that 
'•''there is not a line or a sectio7i in the hill which opens a 
market for another bushel of wheat or another barrel of 
pork.'''' The unequivocal statements of a favorite states- 
man have roused the somewhat indifference of thousands 
of citizens, and make certain the speedy prevalence in the 
United States of the unassailable doctrine, that any Peo- 
ple must buy freely if they would sell broadly. 

Fallacy B : that iariff-taxes are needful in order to start 
infant industries. There is no analogy whatever between 
Child-bearing and Child-groAving and any form of Buying 
and Selling at any time, but the deceit in the wretched 
simile has cost the world billions of dollars of pure loss. 
To bring up infants from birth to maturity is indeed a 
good deal of a task for the parents, but it is not in any 
sense an economical task : the parents neither ask for nor 
receive a return-service in kind : the transaction is wholly 
moral in its character, and not economical at all : there is 
no party of the second part in the premises : there is a 
free giving, and that is all. Buying and Selling, on the 
contrary, has no infancy, and no maturity and no old age. 
This particular Minerva springs at once full-grown and 
full-armed from the brain of Jove. The conditions of 
Trading are forever the same ; with no reference to the 
age of the parties, the antiquity of the industry, or any 
other such irrelevant thing. If any person anywhere (old 
or young) has got something to sell, and linds (directly 



I'OEElGK TRADE. 509 

or indirectly) any^tlier person anywhere who wants his 
wares and can pay for them, — all the conditions of mutual 
profit are present, and everything else is an impertinence. 

Much more than this. Tariff-taxes have to be paid by 
somebody. Their payment is inexorable at the custom- 
house, and interest and other charges are added before the 
sum reaches the ultimate payer. But the ultimate sum 
however made up is exactly so much out of the commercial 
gains of the payer. The sign is every time minus and not 
plus. When egregiously high tariff-taxes are multiplied 
in number, and all the additions are made to them, they 
become an incalculably large sum, every cent of which has 
to he paid out of the gains of current Industry. Now, 
what a queer way that is to foster industries ! What a 
queer way to help start them ! It takes Capital to start 
new industries, and to carry on old ones ; but tariff-taxes 
(with all their accretions) take just so much out from 
what would otherwise naturally become Capital. That is 
to say, all Capital is savings from the gains of Exchanges ; 
and these gains are reduced by every tariff-tax that touches 
them directly or indirectly. Taxes from their very nature 
can help nobody. They hurt everybody. What a device 
this is to start new industries with, namely, to pick the 
pockets of the very men, who are to start the industries, 
if they ever are to start at all ! Lower your reservoir to 
begin with, in order to give head and force to your faucet 
flow ! 

But this is not half of it. On what industries do the 
protectionist taxes fall at first to weaken and discourage 
them ? Of course on the natural and profitable ones, 
which only ask to be let alone in order to maintain a 
healthful life and growth. If, under natural conditions, 
any industry is in existence, one may be perfectly sure it 
is profitable, since Profit is the only thing in the world 



MO 



im;in('iim,i:s ok roi.i'ncAi, ioconoimv 



llint ('Mil sl:irl niid ImiM ii|i :iii iiuliistiN : w Ikmi |Iu> pruliti 
(•(>;isi's, till' ti;nlt' I'cnscs ol lUM'i'ssit \- : llic iiii)|i\i" (d it is 
</ont'. Ill l)i>li;iir (»r what sort of iiidusdit's nvo (hosc^ (ii\(>a 
oslcnsililv Miitl iiliiusiltly Icxit'd"' ()itl\', if Wf !»ri> lo lu'li(>vo 
lilt' |ii'(>l('i'l ioiiists, tlu> weak and [ircsriitU uii|U'(ili(al)l(^ 
(tiu>s. // Is (!)(' Inl'diit ln</iis(rit'H tltitf lii'iil tlw )iiirslni/-/i(>N/«'/ 
'riiat is io sa\', <a\ dnwii and iH>rIia|»s dt^sti-oN' llu> jwofitdhle 
iiitlnsi ri(>s, lli(> industries tliat /'-'V, that can |>addlt> thiMi" 
own canof and no llianks to an\l>o(l\. in onliM' to l)riii<r 
iorward cfitain otlicr industries, w liicli li\ ronfossion lUld 
opt'ii in'oclamat ion arc ii ii/u'<>jlf,i/>/,\ -awA can only start by 
ta\in!;' (heir ncijdiliois ! {)[' course, tlicre is a cat in this 
lucal, and w c sliall h't her out o{' the ha<;' in jihiin si^'lit 
|>resiM\tly; hut we ait> takiii!;- now our friends, th(> pro- 
teclioiiists, at their own word, and e\hihitin<;' their inar- 
Vi'Uous \vis(h)iM iiiuh'!' the (ci'ins o[' llicir own ehoosiu>;". 
\\'hat a hh'ssed \va\ fiu- a nation to <n'o\\ rich, to siuito 
down with hijdi taxes thi> acti\-e and t'ntcr[irisin>4' and 
iuiK'peiidcnt and tlierefori> pi'olitahh> iiuhistries with o\m 
hand, and !;ro|ie ar<>und with the other to lind sonu> poor 
and iniclive and unfiii!;'al and natnralh un[irotilahK' in- 
dustries, in onh'i' to fetch forward these 1>\ means of t ht> 
pluiuKu' lihhed from the otliersl 

I'o «;'o hack for historical illiist rat ion (o Washinj^'lon's lirst, 
mlminisl rat ion, w Iumi the lirsl (cxlremch mild) protection- 
ist taxes were lc\ ied in this coniil r\ , we havi' tlu' hii^iu'st. 
authority for know iiii;' that mau\ I'li the IcadiiiLT branchtN 
ol inanntact ures wert> prosperous and pi'i>litahie. They 
had uo arlilicial hcdp in iM'(K>r to start, hut on the iH>Mtrary 
had had continual disi'ourai^'omcnt for a century uudor 
tlu> miserahlc proli'i'lionist policN o( the mother country. 
W'ashiuo'tou himself was inaugurated in a dark hnnvii 
suit of woollen cloth of American mauufact uri> : so was 
.lohii Adams inau>;iirateil lirst \' ice-rresitK"Ul i\{ the I'nittMl 



K()IiKHi,N TRADK. 611 

States a})()iit ili(i HaiiK; tim*; in ii, ^iub of wli(jlly nativ(; 
nianufa(jtiir(!.' 'IMiis was in Aptil, \lHi). In Novern})cr of 
the Hairie ycai', Wa.sliin^'tori r(;tijrii(;(] to New York from 
liJH first toiii' in New J^jn^'Iaiid " aHhini.Hlu'jl holJi, at ike mar- 
Dv.Ud'iiH (jrowl.li, of corn'mcrcc and manuj'arA.urcn in New Mruf- 
laml and I lie. iji-.w/ral conteni/mcMt of itn inhahitanttt with the 
new (jovnrrmumt " (,S(;lionl(!r, j). 1 17). AlxjxaiHler TIariiilton, 
tlio (irst Seerotiuy of t}i(; 'l'r(;asnry, in his hunons licj^oi-t 
tf) C'o)i^'i'(;ss on MaiiiifactureH, in 17!H, cnnnienil-ed seven- 
teen hriineiies as tlien thrivinj^ so as to fiiii'ly supply the 
home iniu-l<(!t, iuid settle into rcKuhir tnuh;s. These wen;, 
skins Jind lenXlier, (!;i,x and h(!inj), iron jijkI steel, hriek and 
j)ot,(,ery, stai'cii, l>rasH and eoppei', tinwanj, carj'iageH, pairi- 
tei''s colors, nifined Hiif^'iU's, oils, soaps, ca-ndles, hats, guri- 
|)ow(lei-, elio(;ol;ite, snuri a,nd e.jiewing tobacco. It is plain 
(Mionjdi from tin; de})ateM of the time as well aH from the 
iiii,tiii(; (jf the (;ase, that the protectionist tax(!S in our first 
two Tariffs, alrcjady considered hen; in (](;t!i,i], although 
they w(;r(! e,onip;i,rjU,i vely sli;.Hil, in iiumhei' iui'l ;i,moufit, 
fell in. the wii,y of discouragement on. tliesc; inr;ipient yet 
ind(;p(;nflent Tna,nuf;u;tur'es ;is well iis npf)n all4/lie farnHjrs 
of the l;ui*l. There e;ui he hui, lillh; i;i,tionii,l (juestion, 
tiiat tlu; woollen industiy wiis sounder a,t the (;ore in 1789, 
■when Washin^lon wii,s ina,ugurated in native woollens, 
than in 1880, when linrrison wii,s inaugurated in the same, 
the ostentatious gifl, of a, firm of [jrot(!etionist woollen 
manufaetur(;rs shortly afterwaj'ds adju.dged to Ik; l)a,nki-upt 
and fraudidently so. 

Thf! h(!st point, after all, to make against this hollow 
faliaijy, is the practical one, tha,t no industry whatever, 
whether "infant" or othei', has ever come in this country 
into an acknowledged self-sustaining position under a 
whole century's tariff-taxes. Salt, hemp, coal, cottons, 
' Sec JairifiH Sclioulf;r'H IJiiil,(;fI SLatoH, p. 77 of Vol. I. 



512 PRINCIPLES OF POLITICAL ECONOMY. 

woollens, nails, and iron and steel products generally, were 
the chief articles protectionized at first, and have been j)ro- 
tectionized ever since, but no one of them all has ever 
come into a condition of self-support according to the view 
of the privileged beneficiaries. Each one of them was an 
old industry, and a relatively rich industry, when it Avas 
taken under the '' fostering care " of the tariff-taxes, levied 
for their further enrichment on the masses of the people ; 
and it was only greedy and secret combinations among 
these for that purpose, which put them at first and has 
kept them ever since in the rank of public beneficiaries. 
The simple truth is, that diversity of employments is 
rooted in human nature and in the circumstances amid 
which God has placed men, and so far is it from being 
true that taxes and restrictions are needful in order to 
foster manufactures, taxes and prohibitions cannot prevent 
them from springing into life ! They are just as natural 
to men and to colonies as agriculture is. Indeed, agricul- 
ture can scarcely take a step without them. The farmer 
must have ploughs and carts and other implements ; and, 
depend upon it, there are some natural mechanics in that 
colony. Clothes are as needful as food, and spinning and 
weaving in some form will begin at once, and prohibitions 
will be powerless to stop them. 

Deadly to the fallacy in hand is the word of unquestion- 
able History. Any one may read in Palfrey and Bancroft 
and Hildreth such facts as these, scattered all along 
through the noble volumes. The manufacture of linen 
and woollen and cotton cloth was begun in Massachusetts 
in 1638, in Rowley, by some families from Yorkshire ; and 
became so remunerative in a couple of years that some 
acts of the General Court designed to stimulate it were 
repealed. Brick-making and glass-works and the manu- 
facture of salt were all begun in Massachusetts before 1640. 



FOREIGN TRADE. 513 

In 1643, the younger Wintlirop established iron-works in 
Braintree and Lynn, which after some losses were success- 
fully prosecuted. Within less than twenty years there- 
after, tannery and shoemaking had made such strides, that 
boots and shoes became articles of export. That these 
were no fancy beginnings in manufactures, we may strik- 
ingly learn from an Act of Parliament passed in 1698. 
Notice the date. This law is a sample of many more : — 
" After the first day of December, 1699, no wool, or manufac- 
ture made or mixed with wool, heing the produce or manu- 
facture of any of the English plantations in America, shall 
he loaden in any ship or vessel, upon any pretence whatso- 
ever, — nor loaden upon any horse, cart, or other carriage, 
— to he carried out of the English plantations to any other 
of the said plantations, or to any other place whatsoever^ 
Thus the fabrics of Massachusetts were forbidden to find 
a market in Connecticut, or to be carried to Albany to 
traffic with the Five Nations. " That the country which 
was the home of the beaver might not manufacture its own 
hats, no man in the colonies could be a hatter or a journey- 
man at that trade, unless he had served an apprenticeship 
of seven years. No hatter might employ more than two ap- 
prentices. No American hat might be sent from one plan- 
tation to another." In 1701 the three charter colonies are 
reproached by the lords of trade " with promoting and prop- 
agating woollen and other manufactures proper to England^ 
In 1721 New England alone had six furnaces and nine- 
teen forges, and there were many others in Pennsylvania 
and Virginia. Parliament enacted in 1750 that no more 
mills should be erected in America for slitting or rolling 
iron, or forges for hammering it, or furnaces for making 
steel ; and in certain cases, agents of the crown were au- 
thorized to tear down such establishments as " nuisances.'''' 
How far all the arts of navigation had been carried in the 



514 PRINCIPLES OF POLITICAL ECONOMY. 

Colonies before the Revolution, every one may read in 
Burke's famous speech on Conciliation with America. 
How far the products of the loom, the forge, and the anvil, 
were already being exported, in spite of British legislation, 
to other countries, any one may see in Lord North's last 
proposals and concessions to ward off Independence. 

Protectionism having once fed its petted beneficiaries 
from the public crib, that is to say, from taxes wrenched 
irom the many to enrich the few, invariably clamors for 
more and more rations for its pets from the same public 
source. Not only does no industry become self-supporting 
by its bite and its sup, but each becomes according to its 
own facile representations and representatives, more and 
more helpless in itself, more and more shameless in its 
demands, more and more entitled to public charity, and 
less and less inclined to surrender one iota of past or 
present privilege. The daughters of the horse-leech cry 
continually, Give ! Give ! The following schedule relates 
to woollens mainly, but it is a fair sample of many other 
protectionized classes of goods under the successive tariffs 
in this country, in point of increased taxes on the people 
in their behoof. While these lines are being Avritten, the 
McKinley tariff-bill, so-called, having passed the House, is 
pending in the Senate. It is significant, that this piece of 
legislation, whether it be finally enacted or not, proposes 
to open the second century of the United States Protec- 
tionism by largely hoisting the tariff-taxes along the main 
line. Infant industries indeed ! 



FOREIGN TRAD:^. 



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510 PRINCIPLES OF I'OLrTU^AL ECONOMY. 

It is also signilicaiit in this (.'oninH'tiou to read. an extract 
from the Report of JMr. A\'illiani Whitman, President of 
the National Association of Wool IManut'aeturei's, dated 
March 20, 1890, to the Stockholdei-s of the Arlington 
INIills, jMassacluisetts. "7 //(/re ln'cn i/oiir TriaKKrcrfor a 
eo)it«'(-iitirt' pt'n'oi^ of (/ci'xti/ j/ettrx. Duriiii/ t/ils jirn'oif t/ir 
averat/c ear)ii)i</s luwc />ci'n -O/^- jx'r ccndoii i(po7i the capi- 
tal. The e(n-)iin(/s of the laxt i/ear were near/i/ three and a 
hdlf times those of the i/ear 2)rerioi(s, a)ii/ there Is evert/ 
ineUeation that the eurrent year will be the most profitable 
one in the eo»ipanf/s histori/."' 

Fallacy C: that a home market is better and broader than 
a foreign market. Professor Thompson of Pennsylvania has 
publicly and repeatedly stated, that, by a persistent policy 
of Protectionism a "home market" would be created for 
all the bread-stuft's that this great country produces ; and 
John Roach, the shi])builder, expatiated at length before 
the Tariff Commission of 1882 on the advantages the 
farmer derives fi-om the better " home market " already 
created by Protectionism. To come nearer home in place 
and further down in time, there was organized in Eastern 
Massachusetts with headquarters at Boston in some con- 
nection with the national election of 1888, a so-called 
"Home Market Club" of large proportions. It is gener- 
ally nndei*stood in the State, that a large minority, if not a 
majority, of the members, are dis]>leased witli the Mc Kin- 
ley I)ill of 1800, declaring tliat tlic nuistard is carried to 
fanaticism in this bill, that luuthcr the "lionic market" 
nor any other can profit by such a series of prohibitions. 

However this last may be, it is plain, that a ridiculous 
and most harmful fallacy underlies all references to a 
"home market" in any connection with foreign trade. It 
is simple Gospel charity to believe, that Thompson and 
Roach and the founders of the Home Market Club and all 



FOREIGN TRADE. 617 

others, who repeat this wretched stafi", never st(jpped in 
their thoughts hjng enough to inquire what a "market" 
really is, never analyzed into its simple elements that com- 
posite thing called a " market," but each and all in turn 
have taken up a catch-word carelessly which seems on the 
surface to have some significance though in reality it has 
none. 

All will agree, if they will stop to think, that a " mar- 
ket" is always made up of huyem with return-services 
in their hands. A bigger home market than before con- 
sists only in more domestic buyers than before, all ready 
with acceptable jjay in all their hands. More persons 
than before, more services-in-return than before. Now, if 
Protectionism can enlarge the home market^ it must be 
(1) either by increasing the number of births or diminish- 
ing the number of deaths in a given time in a given coun- 
try. Precisely how big bundles of big taxes, which the 
whole population must pay in one form or another and over 
and over again, may be made to stimulate births or in-o\or\g 
lives, no reasonable man can see, and it is not unreasonable 
to deny that a protectionist can see it. But conceding 
that he can see and show this, his task is then but half 
done, for he must proceed to see and show how these same 
onerous taxes are able (2) to multiply the return-services 
in the hands of this increased population ! 

If he think at all, the protectionist is com] jelled to 
remember, that his system is always and everywhere a 
series of prohibitions on profitable trade. A profitable trade 
always gives birth to gains. It always gives bii'th to Capi- 
tal. It always gives birth to Plenty. That is the nature 
of it, and the Divinely ordained blessing on it. But when 
the greater part of these gains are artificially cut off, when 
the possible capital is reduced in volume, when the scarcity 
comes in which is the primary purpose of Protectionism to 



618 PRINCIPLES OF POLITICAL ECONOMY. 

create, it shall go hard if there be even as many return- 
services as when the process began. Not a better "home 
market," but a more meagre one, is the inevitable issue of 
restrictions and prohibitions. 

If our protectionist try to get out of this snug place, in 
which he now finds himself, provided he is able to feel the 
force of any logic whatever, by claiming that his broader 
" home market " is to be made by new immigrants with 
old-world values in their hands to buy with, he certainly 
cannot escape by this route, because (1) he must in order to 
do this see and show what there is in big taxes enormously 
multiplied to invite immigrants here at all; and (2) our 
typical protectionist is scared to death by the handiwork of 
foreign " pauper labor " wherever exposed for sale, and of 
course he is not prepared to welcome the pauper laborers 
themselves, of which class as described by him the immi- 
grants would mostly consist ; and besides, the tariff would 
not admit to our shores the old-world values, which would 
be the immigrants' sole return-services to help make up the 
new market ! 

Within a week of the present writing, Senator Morrill of 
Vermont has broached from his place the idea in debate, 
that the industries of the United States can be so stimu- 
lated by protectionism as to cause the consumption of all 
the agricultural products of the United States. Well, 
when? The stimulus has been applied now just thirty 
years under Mr. jNIorrill's own eye, and by a tariff called 
by Mr. Morrill's own name, increasing its rates every little 
while, even in 1883, when the public pretence was to 
diminish them ; and agricultural products of all kinds, 
including lard and pork and wool, have never been so 
" deadly dull " as in this interval of high protectionism. 
Scores of thousands of bushels of well-ripened Indian corn 
were burned for fuel in the more western States and Terri- 



FOREIGN TRADE. 519 

tories the very last winter, because the market for it was 
too poor to pay for its transportation to Chicago over 
protectionized rails, and in cars built of tariff-cursed 
lumber, every nail and bolt and screw in which doubled in 
price from the same general causes. If Mr. Morrill were 
not in his dotage, or if in his prime he had ever closely 
analj^zed a single case of trade, foreign or domestic, he 
would see that the abandoned farms of his own State 
reckoned to be about one-third of the cultivated land on 
the eastern slope of ■ the Green Mountains to the Connecti- 
cut River, — Mr. Morrill's own native region and residence, 

— abandoned farms for two years past assiduously sought by 
State officials to be filled in if possible by immigrants from 
Sweden virtually giving them the lands and farm-buildings, 

— fling out their flat contradictions to this senatorial 
drivel ; that the constant decline for a quarter of a century 
of the farming population in every State in New England 
gives the lie to this miserable proposition; and that the 
constantly increasing area of mortgaged farms in every 
agricultural State in this Union is an overwhelming proof 
that the " home market " for farm staples has been growing 
constantly worse for years under this boasted protectionism. 

The year 1890 is likely to prove the pivotal point of 
time in the swing of this whole proposition of Deceit, for 
two reasons, namely, (1) it is the year of the decennial 
Census, in which at least a half-hearted attempt is being 
made to bring out the aggregate area in each State of the 
mortgaged farming lands, and nothing can prevent the 
appearance in which of the lessening volumes of population 
in the purely agricultural communities ; and (2) the year 
has already been marked by the political revolt from the 
party of protectionism of the masses of the farmers in the 
Mississippi Valley, and their organization into " Farmers' 
Alliances," naturally and demonstrably hostile to all Re- 
strictions on the sale of farmers' produce. 



520 PRINCIPLES OF POLITICAL ECONOISIY. 

Fallacy D : that protectionism tends to raise the wages of 
general laborers. In our third chapter, the whole doctrine 
of Wages was clearly and carefully laid down, and it is 
only needful now to remind the reader of two or three of 
those fundamental principles. The Labor-giver and the 
Labor-taker only touch each other at the old points of re- 
ciprocal Desires and Renderings. There are two persons 
standing in that relation each to each. A rate of Wages is 
always a result of a Comparison. If the Labor-takers, 
whoever they may be, more strongly desire the services 
of the Labor-givers, whoever they may be, other things 
remaining as before, there will be a rise in the rates of 
Wages, because Effects always follow the operation of 
Causes in Economics, as in all other scientific spheres ; 
and if the Labor-takers, for any reason, desire less than 
before the services of Laborers, other things being equal, 
the general rates of Wages will decline of necessity. 

Kow, what is the necessary effect of Protectionism upon 
the general Demand for Laborers? How is the whole 
class of Labor-takers affected by prohibitory tariff-taxes ? 
Note every time, that it is the presently and independently 
profitable industries, the industries that ask for nothing 
except to be let alone, that are struck and restrained by 
these tariff-taxes ; the fact that any industry is successfully 
going forward under its own motives is sufficient proof of 
its own j^i^ofit-'^bleness ; these are the industries, in every 
case, which are curtailed by restrictive tariff-taxes, their 
former gains are lessened of course and by design, and 
their motives consequently to hire Laborers to carry on 
these branches of business now taxed and tormented are 
lessened; less Desire for Labor-givers gives laborers less 
every time round ; the so-called argument of Protectionists 
is, to introduce alleged unprofitable industries by means of 
taxing down profitable ones ; and pray, what effect must 



FOREIGN TRADE. ' 521 

that have upon the general Desire to employ Labor-givers, 
and consequently what effect upon general rates of Wages ? 

Take one look further along this same line. Tariff- 
taxes of this character are designed to keep out, and do 
keep out, foreign wares, which are the natural and profit- 
able market for domestic wares : how will this forced 
exclusion affect the Demand for laborers to make or grow 
the domestic wares whose market is now lost ? And what 
is the influence on the Wages of those whose services are 
now in lessened Desire along the whole line ? Causes pro- 
duce their Effects everywhere and every time. 

Dissatisfaction among, and actual disaster to, Labor- 
givers as a class, have always followed the imposition of 
protectionist tariff-taxes in this country, as a matter of 
plain observation and record ; have followed increasingly 
and more disastrously increased restrictions and prohibi- 
tions on profitable trade ; " Strikes " on the one hand to 
resist a lowering or secure a lifting of Wages, " Lockouts " 
on the other to bring laborers to terms, "Shut-downs" for 
pretended repairs in order to gain time to tide over the 
gluts that always accompany artificially restricted market,':', 
semi-hostile relations between Employers and Employed, 
interruptions to travel and transportation, timidities of 
Capital fatal to new and enlarged enterprises, have never 
characterized this country so strikingly as during the 
quarter-century of Protectionism culminating in 1890. 

The following table accurately compiled by Editor Phil- 
pott of Iowa, from the National Census, shows in remark- 
able figures the relatively slow rate of progress of the 
Nation in thirteen essential items of growth under the 
Morrill Tariff, as compared with the rapid rates of progress 
in the leading lines under the Walker Tariff. The com- 
parison lies in the per centum of increase over the previous 
decade of the period 1850-60 relatively to each of the two 



522 



PRINCIPLES OF POLITICAL ECONOMY. 



periods 1860-70 and 1870-80 : the average of the last tivo 
periods is takerifor the sake of an easier co7nparison of the 
progress of the one decade (Walker^ with the average of the 
two later ones (^Morrill^. 



Lines of Progress. 



Population 

Wealth 

Foreign commerce, aggregate 

Foreign commerce, per capita 

Railroads, aggregate 

Railroads, per capita 

Capital in manufactures 

Wages in manufactures, aggregate 
Wages in manufactures, per hand . 

Products 

Value of farms 

Farm tools and machinery 

Live stock on farms 



1850-1860. 



35.5 

126.6 

131.0 

70.3 

240.0 

150.0 

90.0 

60.3 

17.3 

85.0 

103.0 

62.0 

100.0 



Average each 

Ten Yi'iirs — 

1860-1880. 



26.2 
61.0 
45.6 
15.2 
69.0 
34.0 
66.0 
58.2 
9.4 
69.6 
23.6 
27.7 
17.3 



The State of Massachusetts has been diligently and 
scientifically taking the Statistics of everything relating 
to Laborers as such for many years ; and we take now by 
way of confirmation of what has just been written a few 
statements of fact from the official Reports. One-third of 
Massachusetts wage-earners were out of work one-third of the 
time under the benign influence of Protectionism [1887]. 
Wages went down in Massachusetts on the whole average 5 
per centum 1872-83, ivhile in the same interval of time they 
went up d per centum in Great Britain [1885]. Wages in 
Massachusetts advanced in 1830-60 (Walker) 52 per centum 
and in 1860-83 07dg 28 per centum (^Morrill). What is 
called the needful cost of living increased in Massachusetts 
between 1860 a7id 1878 (^Morrill} 14^ per centum m spite 
of immense cheapening s in costs of production and transpor- 
tation [1885]. 



FOREIGN TRADE. 



523 



The U. S. Government has been gathering for a long 
time important Statistics relating to Laborers and their 
Wages and their Costs of Living, not only in the decennial 
Censuses but also in Consular Reports and in the Reports 
of a national Commission established for that purpose. 
We excerpt a few relevant statements from these almost 
at random. Wac/es in free-trade England are from 50 to 100 
per centum higher than they are in any protectionized country 
on the Continent of Europe. The aggregate Values of this 
country increased 1850-60 (^Walket'') 126 per centum, and 
in 1870-80 (^MorriW) only 80 per centum, after reducing 
the census values of 1870 to a gold basis. Vessels Amer- 
ican-owned and American-built controlled three-fourths of 
our foreign carrying trade in 1856, and less than one-sixth 
of it in 1886. 

The Census of 1880 gives the total number of persons 
employed in the great subdivisions of industry in the 
United States as follows : — 

Trade and transportation 1,810,256 

Manufactures, mechanical and mining . . .3,837,112 

Professional and personal services 4,074,238 

Agriculture 7,670,493 

The following table compiled from the censuses of the last 
four decades will be found to yield food for thought in the 
light of the present paragraphs. It relates solely to manu- 
factured goods at the four successive epochs. 





1850. 


1860. 


1870. 


1880. 


Value of products. . .". 

Value of materials 

AVnges paid out 

Materials to products, per 

cent 

Wages to products, per 

cent 

Average wages earned... 
Capital to products, per 


$1,019,109,616 
.555,174,320 
236,759,464 

54 

22 

$247 

52 

123,029 

7.79 


$1,885,861,676 

1,031,605,092 

378,878,966 

54 

21 

$289 

53 

140,433 

9.34 


$4,232,325,442 

2,488,427,242 

775,584,343 

58 

18 

$377 

50 

252,148 
8.16 


$5,369,579,191 

3,395,823,547 

947,953,795 

63 

17 
$346 

50 

253,852 

10.79 


JTuniber of establishments 
Average hands each 



524 PRINCIPLES OF POLITICAL ECONOMY. 

Our manufactures were put down in the Census of 
1880 as in value $5,369,579,191. But this sum contains 
$1,670,000,000 that does not strictly belong to manu- 
factures, such as flouring, lumbering, blacksmithing, sugar- 
refining, coffee-roasting, slaughtering, and a few others. 
This sum being taken out, there is left in round numbers but 
$3,700,000,000. This is not a great amount for 50,000,000 
of people, and for a land with such natural tidvantages 
for manufacturing as our own. 

Fallacy E : that the costs of Wages to employers and of 
Materials to manufacturers soinehow justify Protectionism. 
The harmful confusion is constantly made here between 
Rates of Wages and Costs of Labor — two very diverse 
matters. Rates of Wages depend on a very different set 
of circumstances from Costs of Labor. Failure to draw 
this distinction, and a desperate desire to clutch even at a 
straw with which to bolster up absurd Restrictions, have 
made a hotch-potch and a caricature of attempted argu- 
ment at this point. Rates of Wages have always been 
relatively high in this country as compared Avith the coun- 
tries of Europe for two general reasons : (1) the country 
is new, with enormous natural advantages of every sort, 
with comparatively few laborers competing steadily with 
each other for work, large numbers of persons passing con- 
stantly out of the employed into the employing classes ; 
and (2) there has almost always been from the first, and 
there is likely to be again in the immediate future even if 
there be not at the present moment, a Money in this coun- 
try depreciated below the gold standards . of Europe, in 
which the rates of current wages are always reckoned, and 
which makes them seem to be higher than they actually are 
in purchasing-power. On the other hand. Costs of Labor 
have always been, and are now, low in this country 
as compared with Europe, for two general reasons also : 



FOEEIGN TEADE. 525 

(1) all classes of laborers are more efficient and skilled in this 
country than in Europe, working with more energy more 
hours in the week, under less cost of superintendence, 
being as a rule more temperate and healthful and educated 
persons, so that employers get more for ivhat they give than 
do employers abroad ; and (2) the cost of that to the em- 
ployers in which the laborers are paid, whether money or 
other valuables, is always less here than abroad, because 
the money usually is depreciated money which costs less 
in commodities, and even if it be not, the current prices of 
general commodities are higher here than there, so that the 
cost of wages paid directly or indirectly in commodities is 
less here to employers. 

A second and distinct and wholly convincing proof, that 
the Cost of Labor to employers has been less here than 
abroad during the first century of our national existence, 
has been the unquestioned fact, that the Rate of Profits 
has been higher. A constant stream of foreign Capital has 
come hither for investment, drawn solely by the higher 
rates of Profit. But if the rates of Profit have proven to 
be higher, the costs of Labor must have been lower, because 
laborers and capitalists divide the whole returns between 
them. Nobody else has any claim upon the conjoint pro- 
ceeds. Profits are the Leavings of the Costs of Labor. If, 
therefore, these Leavings are larger in one country than 
another, then of necessity the Costs of Labor are lower in 
the first country. 

Now, Protectionists have had the effrontery (largely the 
result of ignorance) to contend, that they are at a disad- 
vantage as employers of laborers on account of the rates 
of Wages they are obliged to pay to them ! Exactly the 
reverse is the truth. Instead of being at any disadvantage 
at this point, it is a matter of absolute demonstration, that 
American employers pay the smallest costs of Labor in the 



526 PRINCIPLES OF POLITICAL ECONOMY. 

world ! Employers as such have no interest in the rates 
of Wages as such, but only in the costs of Labor to them- 
selves as capitalists. High rates of Wages not only usually 
accompany low costs of Labor, but also are a proof of them ! 
The patient (not to say stupid) American People have con- 
sented for thirty years past to be abominably taxed for the 
exclusive bcnclit of a set of brazen mendicants, on the 
ostensible ground, that the said public beggars were unfor- 
tunately placed in comparison with European competitors, 
when the simple truth has been, that they had a constant 
advantage in the best, and cheapest (in cost to themselves), 
and steadiest and most intelligent (on the whole), laborers 
in the world. 

What is the truth about raw materials in this country? 
PiSpecially raw materials in those branches of industry, 
which have been most steadily protectionized from the 
first, like iron and copper, and cottons and woollens? Can 
any reason be found for legislatively excluding foreign 
products of these classes on the ground of any disadvan- 
tage of our producers on the score of raw materials? 
Look at iron ore, for example, now protectionized 'to the 
extent of 75 cents per ton. No country in tlie world pos- 
sesses such deposits in quantity and quality and accessi- 
bility of iron ore as the United States of America. Vast 
beds of the best ore in the world, esijccially in wide 
regions along the whole course of the Tennessee River, 
lie directly upon the surface of the ground ; and the so- 
called "Iron Mountain" in Missouri is said to have ore 
enough above the general surface of the country round to 
su])ply the Avants of the entire United States for two cen- 
turies ! Yet every ton of this ore is artificially lifted in 
price to the very People to whom God gave it in exceed- 
ing abundance. The average cost of mining, washing, 
screening, and loading upon steam freight-cars for trans- 



FOREIGN TRADE. 527 

portation to market, of brown-hematite ore at one of the 
Mines in Tennessee during the summer and autumn of 
1890, was 33 cents per ton, with a constant downward 
tendency in cost as machinery was multiplied and methods 
improved. This included the rent paid to the owners of 
the land holding the ore-beds, and every other item of cost 
carefully computed by the owner of the capital and mana- 
ger at the mines. This statement is made on the authority 
of the said owner and manager over his own sign manual, 
with his consent given that it be printed as at present in 
the interest at once of Science and Righteousness. 

It has often been publicly stated by experts, that there 
is more coal in deposit in the United States than in all the 
rest of the world put together. Nevertheless, bituminous 
coal has been protectionized since 1874 to the extent of 75 
cents per ton, and slack or culm (another form of coal) 
40 and 30 cents per ton. The bounty of God to the peo- 
ple of this country has been so far forth thwarted by the 
greed of mine-owners acting on the subservience of mem- 
bers of Congress to the few rich combined for that purpose 
to the impoverishment of the unorganized masses. Espe- 
cially has every interest of New England both pojDular 
and manufacturing been sacrificed to the short-sighted 
selfishness of the mine-owners, because the British Prov- 
inces, just to the northward, are full of bituminous coal 
waitiuof for a market ag-ainst New Enoiand g-oods. 

Limestone is a second indispensable requisite for the 
reduction of iron ores. God has put the ore and the coal 
and the lime in unfailing quantities in close proximity 
with each other throughout the entire valley of the Ten- 
nessee. So small is the natural cost of making iron in that 
favored region, that it has been transported this summer 
to Savannah by rail (freights heightened by tariff-taxes on 
steel rails and lumber), and then exported 3000 miles to 



528 



PRINCIPLES OF POLITICAL ECONOMY. 



Liverpool with good profits to the makeis by their own 
confession. 

Steel rails are protectionized at present to the extent of 
$11 per ton, formerly 1 28 per ton. Fortunately, we have 
at present a competent National Labor-Commissioner, here- 
tofore in the service of Massachusetts in the same capacity, 
Carroll D. Wright, who has just made a Report to Congress 
on the comparative cost of producing steel rails here and 
abroad. The following table is national and official and 
indisputable. It shows the Element of Cost in one ton of 
steel rails in Eleven distinct establishments, the first Two 
being located in the United States, the next Seven in 
countries on the Continent of Europe, and the last Two in 
Great Britain. The first column gives the Cost of the 
Material in the several districts, the second the Cost of 
Labor, and the third the total cost of the rails. 



Distinct 
Establishments. 


Materials. 


Labor. 


Total Cost. 


1 


.^21.10 
25.11 
17.(57 
18.06 
18.06 
18.23 
18.10 
18.66 
23.42 
18.05 * 
16.39 


$1.54 
1.38 
1.04 
2.51 
4.64 
2.58 
2.68 
2.97 
2.01 
2.54 
1.36 


$24.79 
27.68 
19.57 
22.18 
25.65 
23.12 
23.19 
23.74 
27.02 
21.90 
18.^8 


2 


3 


4 


5 


6 


7 


8 


9 


10 


11 





The reader who knows how to read between the lines 
will observe the strong confirmation of this table to the 
point already made in these pages, namely, that the " pauper 
labor of Europe" costs much more at a given point than 
the more highly paid labor of England and the United 
States. Thus : the average Cost of Labor in a ton of rails 
in the two latter countries is $1.70 ; the average in the 



FOREIGN TRADE. 529 

seven Continental countries is $2.63. The average total 
cost per ton in the nine foreign countries is $22.77 ; the 
average in the two establishments here is $26.23. It must 
be remembered, that the cost of the material and of all the 
processes of manufacture here is greatly enhanced by the 
device of the tariff-taxes: still the difference in cost is 
even then only 13.46 per ton greater than the foreigners' 
cost : considering that these foreign rails must be carried 
3000 miles over sea, how comes it that a tariff-tax of $28 
or $17 per ton is needful in order to foster rail-making in 
this country? Take off all the tariff-taxes the rail-makers 
and transporters have to pay out, and could they not well 
forego the additional taxes they now impose on their 
fellow-citizens ? Is there anything anywhere in the natural 
costs of Materials and Labor here to put American manu- 
facturers at any disadvantage in their natural lines of 
business as compared with foreigners in their natural lines 
of industry ? 

Fallacy F : that artificial tariff-burdens placed at one 
point may hecome a compensation for other such burdens 
placed at another point of the same general line. This fal- 
lacy has been luridly illustrated in this country since 1867, 
when in the Wool and Woollens Tariff of that year addi- 
tional protectionism was accorded to Woollens ostensibly 
to compensate the manufacturers for protectionism then 
first accorded to raw wools. For a number of years the 
woollen manufacturers had succeeded in persuading the 
wool-growers not to demand of Congress tariff-taxes on raw 
wools, thus publicly confessing that such taxes raise the 
prices of materials to the manufacturers thereof. But the 
wool-raisers argued naturally, if protectionism be good for 
woollens, it must also be good for wools ; the truth was, it 
was equally baneful to both, and to every other beneficiary 
of it in the long run ; but the wool-workers had no answer 



530 PRINCIPLES OF POLITICAL ECONOMY. 

to the simple logic of the wool-growers, ■ — they gave their 
case away when they alleged that tliey could not live with- 
out government aid, — and so they were obliged to surren- 
der to their alread}^ angered brethren of the fleeces in 1867, 
and higher tariff-taxes were put on the woollens in order 
to compensate the manufacturers for tlie anticipated rise in 
the price of wools. Of course it was supposed that the 
patient people would bear the now doubled burdens put 
upon them by tico privileged sets of their fellow-citizens. 
If protectionist taxes made the manufacturers rich, why 
should they not also enrich the rural herdsmen ? In short, 
why may not such taxes make everybody rich ? 

There were those at the time, and the present writer was 
one of them, who foresaw and foretold just what has 
actually happened, namely, that both allies in this scheme 
of popular plunder were going in to their own death as 
well as in to the impoverishment of their countrymen. 
How would any level-headed man, capable of seeing beyond 
the point of his nose, have })roguosticated in the premises ? 
Something like this : it takes many kinds of wools mixed, 
say six or eight, to make the best woollen cloths, and 
several kinds to make good cloths at all ; the United States 
could only furnish two or three kinds, and these in quite 
limited quantities ; the tariff-taxes would raise the price of 
the foreign wools by just so much, to the detriment of the 
manufacturers, who could no longer buy the foreign wools, 
needful for good cloths, and must consequently drop 
down to inferior cloths in their mills, using shoddy and 
cotton and what not : how will that affect the market for 
native wools, especially the fine Ohio and Vermont wools ? 
Only as the manufacturers are prosperous in making good 
cloths that find a (piick and wide market at home, can the 
growers find a good market for their wool ; from these 
heavy taxes on their material and machinery and lumber 



FOREIGN TRADE. 



531 



and dye-stuffs and so on, the manufacture will surely 
droop, and employ itself on poor goods from cheap mate- 
rials, and the market for native fleeces will droop in conse- 
quence, and the prices of home-wools will go down and 
down and down of necessity. 

Precisely this has happened. The gold prices of wool 
were never before so low in this country as since the 
unholy alliance of 1867, and as a rule they have gone 
down lower and lower and lower. Why? Because the 
manufacturers could not, under the tax-laws of their 
country which they themselves had egged on, make the 
cloths demanding the native fine wools. Sheep-raising 
became unprofitable. Millions of fine-woolled sheep were 
slaughtered in a few years for their pelts and mutton in 
Ohio alone. The following official table from the Dejjart- 
ment of Agriculture exhibits the relative number of sheep 
in thirteen States of the Union, at the two epochs 22 years 
apart : — 



States. 


Feb. 1867. 


Feb. 1889. 


Maine 


895,884 
1,335,980 
5,373,005 
3,456,568 
933,193 
700,666 
1,005,509 
2,764,072 
3,033,870 
7,159,177 
4,028,767 
1,664,388 
2,399,425 


547,725 

365,770 

1,548,426 

935,646 

805,978 

435,846 

1,109,444 

773,468 

1,420,000 

4,065,556 

2,1.34,134 

793,146 

540,700 


Vermont 


New York 

Pennsylvania 


Kentucky 


Virginia 

Missouri 




Indiana 


Ohio 


Michigan 


Wisconsin 

Iowa 




.34,750,504 


15,475,839 



The effect of the tariff-taxes on wools, accordingly, even 
during a period when the population of the country in- 



532 PRINCIJM.KS OF I'OLITICAL ECONOMV. 

creased <'»5 }>cr ccnliun, has been to (Jiminish the niuiilx'r of 
sheep in. the hanJx of the fanners hij tiiore than one-half. 
The wool clip in the entire country has indeed hiereased 
since 18G7, but it has been in Texas and on the free ranges 
of the extreme boundaries of civilization in the West, 
where about one pound in three of the gross fleece is clean 
wool, and the most favorable estimate of the present clip 
would oidy sufKce to clothe about one-half of the people 
of the country. Does this look like becoming " indepen- 
dent " of the rest of the world in the matter of woollen 
clothing for our great People? AVill our folks never learn 
that there is nothing " dependent " in Buying and Selling, 
that the more any individual or nation lUiys and Sells 
the more independent they become of course, and that the 
hermit in his poverty-stricken cell is the best image of 
Protectionism ? 

The extra barriers heaped up in 1867 against foreign 
woollens not only did not lessen their importation, but in 
connection with the discouragements thrown upon the 
domestic manufacture as just explained increased the im- 
portations ; so that, in 1877, imports of woollen goods stood 
at 125,000,000 ; and m 1882 had increased to *42,000,000, 
the latter being an increase in one year, from 1881, of 34 
per centum. The people must be (;lothed at some rate, and 
many people will have good cloth at any cost; and the 
Avhole result of this indoecile policy of Prohibitions on wool 
and woollens has been demonstrated right before our eyes, 
(1) to kill off the sheep, (2) to compel the manufacture 
of poor goods, (?)) to multiply foreign Avoollens in domestic 
use, and (4) to double in general the cost of clothing the 
American People. It is difficult to say whether the 
grangers as a class, or the manufactvu'crs as a class, or 
the consumers of woollens, are more put out by this state 
of things. They are all in the slough together, and have 



FOREIGN TRADE. 633 

only themselves to thank for their condition. And it is 
growing worse and worse. As a mere and small example, 
less than one-half the amount of woollen machinery is 
now in operation in Berkshire County, Massachusetts, that 
was running here 15 years ago ; and three-fourths of all 
the woollen manufacturers doing business in the County 
have failed in the 20 years just now past. In one word, it 
is no compensation to one industry/ for artificial hurdeyis piled 
upon it, to pile corresponding burde^is ujjon other industries 
affiliated tvith it. All legitimate industries every- 
where ARE INTIMATELY AFFILIATED WITH EACH OTHER. 
Fallacy G : that because some Jcinds of prosperity some- 
times accompany and follow after Protectionism, therefore 
they are caused by it. This is at once the commonest 
and the hollowest of the forms of false argumentation 
employed in this cor^ntry to bolster up a monstrously 
unjust Privilege. The rapid growth of Chicago, for ex- 
ample, in the ten years following the first imposition of 
the Morrill tariff-taxes, was often referred to, as if the 
Taxes caused the Growth. Admitting for argument's 
sake, what would be the height of folly to admit in reality, 
that these Taxes were among the causes of that Growth, 
how absurd to refer to one antecedent the result of one 
hundred or one thousand antecedents ! So of the growth 
of national population in the twenty years following the 
Wool and Woollens Tariff of 1867 : population increased 
about 65 per centum in that interval : tariff-taxes on most 
of the necessaries of life increased in the same interval just 
about in the same proportion : was there any tie of Cause 
and Effect as between the rise of taxes and the rising tide 
of population? Any tendency in the one to bring the 
other? Because one thing follows another in point of 
time, is that any proof that the second is the result of the 
other in point of cause ? 



534 PRINCIPLES OF POLITICAL ECONOMY. 

In the old classification of Logical Fallacies this particu- 
lar one was called by the Romans ^'- post hoc ergo propter 
hoc,'^ that is, after something therefore on account of that 
thing. The thoughts and the speech of civilized men have 
always been full of some form of this incongruity of infer- 
ence ; but it is the stock in trade, the staple and body of 
protectionist argumentation. But it is utterly devoid 
of any significance whatever. Unless some natural tie of 
connection can be shown, as between precedent and conse- 
quent, unless it can be probably shown that nothing hut 
the precedent could cause the consequent, unless taxes 
are adapted in their very nature to increase riches, unless 
repeated subtractions can be shown to be the same thing 
as multiplied additions, then all this sickening talk of 
cheapening prices and intensified activities and diffused 
popular blessings under an odious scheme of subtle taxes 
that only take and can never give., is to be treated with a 
silent and pitying contempt, whether used by the duped 
or the duping. A good instance of this empty form of 
reasoning, — much better because more uniform than any 
one ever sought to be applied in the realm of Trade, — 
woidd be this : the Day has uniformly followed after the 
Night ever since the dawn of Time, and therefore the 
Night is the cause of the Day ! 

It has been indeed hard work to destroy the commerce 
utterly of a great Peoj>le by legal restraints however mul- 
tiplied and by mountain-barriers however piled up, and 
some prosperity has pushed itself into prominence after all 
these and in spite of all these. Behold ! cry the logical 
protectionists, behold in such prosperity the effects of our 
beautiful legislation ! Immeasurable areas of fertile land 
to be had by all Immigrants for the asking ; endless 
deposits on ever}'^ hand of coal and of all the useful and 
precious metals ; primeval forests and streams leaping 



FOREIGN TEADE. 535 

with power from their mountain springs to mill-wheel and 
intervale ; commodious land-locked ocean harbors on every 
side but one, and vast chains of inland " unsalted seas " ; 
a salubrious climate, and an ingenious, well-trained people ; 
self-organized and liberal governments, guaranteeing all 
rational liberties to the people — but one ; all these ante- 
cedents and accompaniments go, as it were, for nothing in 
the minds and on the tongues of some of our citizens, as 
causes of accruing prosperity, in comparison with (as a 
cause) the commercial bondage at the one point possible 
under our liberal and blessed institutions. 

These are seven of the fundamental Falsities of Protec- 
tionism. They might easily be made seven times seven, 
and even seventy times seven. But not one of them is to 
be forgiven. They are unpardonable sins against Science 
and Liberty and Progress. Any radical and comprehen- 
sive Falsehood, like Protectionism, practically contradicts 
the Truth at innumerable points. The test of any pro- 
posed truth is its harmony with other and acknowledged 
truths : the test of any suspected error is its contradiction 
to such truths. Enough has now been said to settle the 
place of any pretended right of a part of the people com- 
mercially to enslave the other part, and ultimately them- 
selves also. 

It only remains in this chapter, in the fourth place, to 
indicate briefly at a few points the course of Opinions 
in relation to commercial Restrictions and Prohibitions in 
general, such as exist at present in their most exaggerated 
forms within the United States, on the part of those best 
entitled by study and intellect and opportunity to form 
and formulate a candid judgment in such matters. 

In respect to the personal motive and circumstances of 
those combining to frame such legal interferences with the 
natural liberty of their contemporaries, and the inevitable 



536 



PRINCIPLKS OF POLITICAL ECONOMY. 



results of them, we will quote first from Sir Thomas More, 
a man of men, in his Utopia, written in 151G. '■'•TJie rich 
are ever striving to pare atvay somethin<j further froin the 
daily wages of the poor hg private fraud, and even hy public 
laws; so that the wrong already existing, for it is a wrong 
that those from whom the State derives most benefit should 
receive least reivard, is 7nade yet greater by meayis of the law 
of the State. It is notldng but a conspiracy of the rich 
against the poor. The rich devise every means by which they 
may in the first place secure to themselves what they have 
amassed by wrong, and then take to their own use and profit 
at the lowest jjossible price the work and labor of the poor. 
And so soon as the rich decide on adopting these devices in 
the name of the public, then they become law. The life of 
the labor-class becomes so wretched in consequence that even a 
beasfs life seems enviable." 

The utter folly of supposing that a Parliament or a 
Congress or a Committee of either is lit to determine, or to 
have any voice in deciding, what shall or what shall not be 
manufactured or grown, what shall or what shall not be 
exported and imported, was never more hapj)ily exposed 
than by Adam Smith in his Wealth of Nations, pub- 
lished in 1776. " The statesman who shoidd attempt to 
direct private people in ivhat manner they ought to employ 
their capitals, ivould not only load himself loith a most 
unnecessary attention, but would assume an authority which 
could be safely trusted not only to no single person, but to no 
council or senate whatever, and ivhich ivould nowhere be so 
dangerous as in the hands of a man who had folly and pre- 
sumption enough to fancy himself fit to exercise it.'''' 

Alexander Hamilton, our first Secretary of the Treasury, 
and in some respects the most brilliant of all our statesmen, 
has often l)een claimed and referred to as a protectionist by 
those unfamiliar with his writings ; but the paragraph of 



FOREIGN TRADE. 537 

those writings, or the phrase of any authenticated conver- 
sation of his, has never been quoted and never can be, 
because they do not exist, which proves him to have been 
a " protectionist " in the modern, or any other proper, 
sense of that word. On the contrary, his deliberate and 
well-founded opinion in the premises is given at length 
in number XXXV of the Federalist, this number printed 
early in 1788 : " Exorbitant duties on imported articles serve 
to heget a general spirit of smuggling ; ivhich is always preju- 
dicial to the fair trader, and eventually to the revenue itself: 
they tend to render other classes of the community tribu- 
tary, in an improper degree, to the manufacturing classes, 
to whom they give a premature monopoly of the markets : 
they sometimes force industry out of its most natural channels 
into which it flows ivith less advantage ; and in the last place, 
they oppress the mercha^it, who is often obliged to pay them 
himself without any retribution from the consumer. WJien 
the Demand is equal to the quantity of goods at market, the 
consumer generally pays the duty ; but when the markets 
happen to be overstocked, the great proportion falls upon the 
merchant, and sometimes not only exhausts his profits, but 
breaks in upon his capital. I am apt to think, that a division 
of the duty between the seller and the buyer more often hap- 
pens than is commonly imagined. There is no part of the 
administration of the Grovernment that requires extensive 
information, and a thorough knowledge of the principles of 
Political Economy, so much as the business of taxation. The 
man ivho understands those principles best, will be least likely 
to resort to oppressive expedients, or to sacrifice any j^articu- 
lar class of citizens to the procurement of revenue. It might 
be demonstrated that the most productive system of finance 
will always be the least burdensome.''^ ^ 

' There were two other authors of some of the papers of the Federalist, 
Madison and Jay ; but Hamilton's authorship of number XXXV was 



538 PRINCIPLES OF POLITICAL ECONOMY. 

Shrewd old Benjamin Franklin, impersonation of com- 
mon sense and common honesty, ridicules in his sly way 
the whole wretched business in the columns of the " Penn- 
sylvania Gazette " in 1789. " / am a manufacturer^ and 
was a petitioner for the act to encourage and protect the 
manufacturers of Peniisylvania. I was very happy when 
the act ivas obtained, and I immediately added to the price 
of my manufacture as much as it ivould hear, so as to be a 
little cheaper than the same article imported and paying the 
duty. By this addition I hoped to grow richer. But as 
every other manufacturer, whose wares are under the protec- 
tion of the act, has done the same, I begin to doubt whether, 
considering the ivhole years expenses of my family, with all 
these separate additions which I pay to other manufacturers, 
I am at all the gainer. And I confess, I cannot but wish 
that, except the protecting duty on my oivn manufacture, all 
duties of the kind loere taken off and abolished.'''' 

In the first congressional debate on the Tariff after the 
new Government went into operation, that is, in 1789, 
Fisher Ames of Massachusetts, who had just before made 
the strongest plea against the Molasses Tax, the raw ma- 
terial of New England rum, became also the strongest 
stickler there for the protectionist view, that artificial 
manufactures may properly enough fasten and fatten 
upon Agriculture, like shell-fish upon ship-bottoms, and 
went to the root of the whole matter of that inevitable 
antagonism in a few frank and radical words, the best 
because the most truthful words that can be found upon 
that side in the century that has followed. '•'■From the 
different situation of the manufacturers in Europe and 
America, encouragement is necessary. In Europe, the arti- 
san is driven to labor for his bread. Stern necessity, tvith 

never (luostioned by anybody ; he himself claimed it expressly with his 
other numbers a few days before he was shot. 



rOKEIGN TRADE. 539 

her iron rod, compels his exertion. In America, invitation 
and encouragement are needed. Without them, the infant 
manufacture droops, and those ivho might he employed in 
it seek with success a competency from our cheap and fertile 
soil." 

Gouverneur Morris, cnie of the youngest and among the 
most gifted of the Revolutionary statesmen, had a clear 
insight into Economic realities. " Whatever saves Labor 
rewards Labor." " Those who will give the most for money, 
in other words, those who will sell cheapest, will have the 
most money." " Taxes can be raised only from revenue : 
push the matter further, and their nature is changed : it is 
no longer taxation, it is confiscation." 



540 i'KLNClPLES OF POLITICAL ECONOMV. 



CHAPTER YIL 



TAXATION. 



Political Econotsfv is the Science of Buying and Sell- 
insf. It must include of course in its discussions the 
Motives, the Methods, the Obstacles, the Rewards, relating 
to Sales, which are themselves first to be detined as fur- 
nisliing the sole Field of the Science. We have now gone 
through with painstaking all of these topics in order, but 
we have not yet fairly struck Taxation, which is indeed in 
all its forms an obstacle to Sales, and in some of them the 
annihilation of Sales, but which in its nature is something 
niiu'li more than an obstacle, namely, a C-ondition of some- 
tliino' hio-her tlian itself. In the very strictest sense of the 
terms, Taxation is not a part of the Science of Political 
Economy, because it is not an essential part of any one of 
those natural processes by which men buy and sell and get 
gain. It is rather a Condition through Government of the 
successful ongoing of all those processes. There cannot 
be, therefore, a science of Taxes, as there is uncpiestionably 
a science of Sales. The facts of Taxes are artificial and 
governmental, the facts of Sales are natural and original. 

All forms of Production, as we have now seen, go 
forward in accordance with positive natural forces and 
motives, which God has ai)pointed, and which men have 
a natural im[)ulso to ascertain and geiu'ralizc and profit 
by ; for it is Nature bids men work and s;ive, l)uy and 
sell, invent and transport, navigate and grow ricli ; but 



•taxation. 541 

l*fature has given no whisper anywhere, at least that we 
can hear, about any Taxes. That is the work of Society. 
That seems to be something negative, not positive, so far 
as Buying and Selling is concerned. Taxation is indeed 
something necessary to the social order, as men are ; it 
furnishes means of defence against greater evils than itself 
is ; but in itself considered, it is an economic evil, because 
it takes away from exchangers a part of the gains of their 
exchanges ; strictly speaking, therefore, it cannot be made 
a part of P^conomic Science. 

But, on the other hand, as we shall see at length in the 
exposition that follows, all the relations of Taxation from 
the beginning to the end are so ultimately connected with 
Exchanges, are so founded on and limited by Exchanges, 
its true principles are so exclusively economical, and its 
abuses are so instantly and constantly harmful to all the 
ongoings of natural and profitable Trade, that Taxation 
must always be treated as if it were a part of Economics. 
The latter is a science, the former is an art ; but the art is 
almost exclusively dependent upon the principles of this 
one science ; and a comprehensive treatise on the science, 
accordingly, must exhibit all its main bearings upon those 
practical rules of Taxation, which are so vital to the hap- 
piness and prosperity of any People. All scientific Econo- 
mists, therefore, have considered the subject of Taxes to 
lie within their legitimate beat. They have, however, 
justified the inclusion upon very different grounds, one 
from another ; and so far as now appears, the present writer 
was the first technical Economist to disclaim in the name 
of his Science direct jurisdiction over Taxation. 

A careful discussion of a series of distinct though related 
Questions Ijelonging to Taxes will exhibit the whole prac- 
tical matter in the light of well-established principles of 
economical Science. 



642 PRINCIPLKS OF I'OMTICAL ECONOMY. 

1. What is tlici ruiidameiiUil (i round of Taxes? G-ov' 
ernment is an essential prerec^uisite to any general and sat- 
isfactory Exchanges, since it contributes by direct effort 
to tljo security of person and pro})ei-ty ; and justly claims, 
tlicrefore, from eacli citizen a coiiipciusation in retui'u foi' 
the Services tliiis r(;ii<I('ic(l to him. We do not nusaii to 
say tliat government exists solely for the protection of 
p(!rson and [tropcrty, or that all the operations of govern- 
ment are to be bi'onglit down within the, sphere of exchange, 
for governnuMit (ixists as \v(^ll for tiie im[)rovenient as for 
i\n: protection of society, and many of its high functions 
ai(! moral, to Ik; pinfornuMl un(h;r a lofty sense of responsi- 
bility to God and to future ages; nor do we mcian to say 
that government has not also a deep ground hjr its exist- 
ence, in virtue of which it may on extraordinary occasions 
demand all the property of all, and even the lives of some, 
of its citizens ; but w^e do iiican to say that, whatever may 
be conceded as the ultimate ground of government, the 
matter of taxation, by which government is outwardly and 
ordinarily su[)ported, and by which it takes to itself a part 
of the gains of every man's industry, finds a ready and 
solid jiistification in the cionimon prineiphjs of I^xchange. 
If, as far as the tax-payer is conceriUHl, the exchange (h)es 
not seem to be voluidary, on a closer analysis it is seen to 
be really voluntary; for in ellect the; pi!()[)le organize gov- 
ernment for themselves, and voluntarily sup])ort it, and 
th(!re is no go veiiiment separate from the will of the people. 

In a very important sense, accordingly, a tax paid is a 
reward for a service rendered. The service which govern- 
ment renders to Production by its laws, courts, and ollicers, 
by the force which it is at all times ready to exert in behalf 
of any citizen or the whole society wluiii threatened with 
evil in person or ])roperly, is I'eiidered somciwhat on the 
principle of division of Libor, one set of agents devoting 



TAXATION. 54i} 

ilionriBclvCiS to iliitJ/ work ; ;ui(l, ii<»(,wil/li.siaii(Jiiij^ .soinc cry- 
ing }i,l)iiS(!S of ;i,iil liorii,y wliicli no coiiHliLiilioii or ))iit>li(^ 
viii/iM; li;i.s yd ljf;(;Ji IoiiikI ;i,i|(;(|ii;i,(,(; vvliolly io avert, \h l'(5li- 
<J(;)-(;(| on IJk; wIioIc; (;(;on<nni<;;ill_y and Kiil,i;srii(;iori]y. Taxes, 
(/li(!r(',ro)-(;, (l(!ni;ui'l(;(l of oilJzon.s by a hiwl'iil ifovcAit incut 
wliicli t,ol(;ni,l)ly \)i;vi'()ViiiH its funcl/ionH, ii,r(; l(;^'iiiuiii,i(; ;i,n(| 
ju.sl/ on j)i'inc,ipl(!,s ol' lOxcliiin^o alon*;. 

2. Wliat/ Ih Uh! SoiJit,OK oui ol" wlii(;ii. TaxoH ;u-<; iu;in;Uly 
paid 7 TIk; answer in, onl of IJit; '^u'lUH ol" l^iXclianj^cH ol* 
HoiM(! HorL ^^il'ts anidtj, and t/JKil'lH whicii ai'c; out of tlio 
quoHiion, no niiui livav (Jid, no )ri;i,n <!V(;i" <;iin, \)n,y \\\H taxes, 
ex.C(!))i/ onl, of IJk; j.(ainM of sonic salos wliicli lio lias alfCiidy 
rnado. Dvcii tlio ni;ui wlio livos wholly on Ijio inl,c,r(;sl> of 
liis nioiKjy iriUHt nialu; ;i ivnc (ixoliango in Icndinj^' it (n, 
{;i'(;(Jil/ ti'afjHa(;tion ), an<l must ali'csady luivo potion liis 
rotui'fi-Horvicc in int(;j'(;st, biifofc lio oim p;i,y his taxeH ; per- 
Honal and [)rof(!KHional sorviints /nust itjccivcj their wages, 
tJie oijt(!orne of exchan^'es, Ijciforo tli(!y cjan })0ssil>ly pay 
tlioii' l,;i,X(:s ; ;i,nd iri<;n can r(;;i,li/,(! nolJiinj^' for tii-x<;H or otluir 
payments fr'o/n iJieir fiU'ins or foimdrirjs or stocks in ti;ulc 
except ii,s tlxiy sell citlier tlieni or tinjir ))rod.ucts. 'I'lie 
Hioi'C Sides, tin; irioi't; !.(;i,ins, and the jj^vc/.iU'A- i'(!SCJ'Voii' 
when(;c taxciS n);i,y he (Jr;i,wn. I'olitical ,r](;ononiy, as the 
vindiciitor of sahis, iis the defcndcji- of iill Icj^'itiinate g;iins 
whatso(!Vc,r, is tin; host poHsihIe fi'iejid of j,!i,x-payers and 
tax-j^'iithercj'H as suxdi. Whii,tev(!r thought or forc^c; r(;sti'iets 
Hales, inid<cM it ftro lanlo (Jic liard(!i' to jciy and, eollect 
taxes, so much I, Ik; h;ijder for a govc,i'nni(!nt to keep its 
liead above WdUiV and rc;i,ch IJh; ends of its being. 

It follows from idl iJiis, by a n(!e(;s,s;i,ry infereiiee, that 
I.Ik; ;i,niiiial Taxes of :i,ny coiintiy must conic out of th(! 
aiiiiu;i,l PLarniligH of the people of tli;i,t coiinti'y, using iJic 
word "•earnings" in its geruiral iuid pro|)er sense. The 
gi'cater the earnings pf^r capita^ the easier are the taxes 



544 principj.es of political economy. 

paid. Sir Richard Temple read an address not long since 
in the Section of Economic Science and Statistics of the 
Britisli Association, some of whose results are not only 
intci'esting but also astonishing. For instance, taking the 
whole population of the United Kingdom (England, Scot- 
land, and Ireland), without division into classes, he demon- 
strates that the average of yearly earnings per head of the 
population is £35 46-., or -1171.28. This exceeds the average 
earnings in the United States by 30%, £27 4,s. : ,£35 4s. 
It exceeds also the average on the Continent of Europe by 
95%, £18 Is. :£35 4s. It falls below that of Australia 
only, £43 4s. :£35 4s, or 19% less. Canada's average 
earnings per capita are $126.80, or 5% less than those in 
the United States, £27 4s. :£26 18s. According to the 
same unimpeacdiable authority in the same paper, the 
annual income fiom investments is in Great Britain and 
the United States as nearly as ])0ssible one-seventh of the 
aggregate Property in each (all kinds), or 14%. In 
Canada and Australia, 18% and 22% respectively. Un- 
doubtedly the most prolitable country in the world at 
present is Australia, and Great Britain stands next. The 
only apparent reason why the United States, whose nat- 
ural resources of every kind are vastly superior to either, 
takes the third rank is, that profitable exchanges here are 
forcefully suppressed by law, and that to an enormous 
extent, neutralizing natural resources and glorious oppor- 
tunities for easily acquired and widespread gains. This 
violent suppression of commerce by national legislation 
makes it just so mucli the harder for any man to pay his 
taxes, whether these be due to Nation, State, or Munici- 
pality. If the reservoir be diminished the flow from it 
through every pipe becomes feebler. 

3. In what Phopoktion ought tlie individual citizens to 
contribute to the fund annually necessary to be raised by 



TAXATION. 545 

Taxation ? The usual answer lias been, that a man should 
be taxed according to his Property. That is the radically 
correct answer, though most who have given it have not 
understood clearly the meaning of the word property. "We 
have already seen that the ultimate idea of property is the 
power and right to render services in exchange, and defined 
it as cmytlblng that can he houglit and sold. Robinson 
Crusoe, while solitary upon his island, did not and could 
not have property, in the true sense of that word. It is 
not the fact of appropriation that makes anything property ; 
it is not the fact that a man has made it or transformed it, 
that makes anything property ; it is not the fact that a 
man may rightfully give it away, that makes anything 
property ; but it is the fact that a man has something, no 
matter what it is, for which something else may be obtained 
in exchange, that makes that something property, and gives 
government the right to tax it. In other words, property 
consists in Values, in a purchasing-power, and not in pos- 
session, or in appropriation, or in the esteem in which a 
man holds anything he has as long as it is his own. 

The test of property is a sale ; that which will bring 
something when exposed for exchange is property; that 
which will bring nothing, either never was, or has now 
ceased to be, distinctively property. This view may not 
seem to be as novel as it is, or it may be prejudiced by its 
very novelty, but at any rate it carries along with it that 
strongest of the criteria of truth, that it simplifies and illu- 
mines a confused section of the field of human thinkiner ; 
and at the same time justifies a practice which governments 
have reached, as it were through instinct, the practice, 
namely, of taxing men who have neither real estate nor 
chattels, on their incomes from industry and from credits. 

To the general question, then, in what proportions shall 
the citizens contribute in taxes to the support of govern- 



.Mfi 



I'lMNCII'l,!':,'* nil' I'OI/I'I'IOAI. I<',( ION* )M V. 



TTifuil., dm )';crH'iiil aiiHwci' (lomoH, Uiiii l,li(!y oiijriil, (,0 
colli, liliiilci /// i>r(i/>(irti(in /<> llic (/tiiiiH of llivir f.rc/tif.ni/rH, of 
u liii.li' vrr kind llicy iii;iy lie. 'I'lic I'miim, Ilic, IdiiiMlry, iJio 
iiiilKllii' r:ulrii;iil, llir iriil rMTiiXc of iiwvy iiiMiic ; |)(;i-Moiiiil 
|iin|irily of every l<iii<l; iuid |i(ii'Hoiiit,l lU'ijiiiriwiiciilM !Ui<l 
cffoliiH of nil (IrMi'lipl ioii:4, Im'.sI ii:|i|)i':u', i'ttv llic |iin|io;uvi of 
[M\i\.\.\n\\, t/iroHi/h fhf i/tiinH rcnliznl hjf mniiiM of llinn. If, 
for luiy I'ciiHoii, iiiiy (tf iJieHd Ikicomio iiii|iro(liii'l i vo, Iuxoh 
iiliDiild ('(<ii<H(i 1.0 Itcdrrivi'd from llirni ; indriMJ, miisl, craMii 
In lin drrivi'd Iroiii IIhiii, lii-ciniMd IJirir owiirrM ran 110 
loii}.i;(U' |)iiv Ity virliir, of Ihrm. ||, \\\,\.y ho oltjccicil llial, 
lillidH, for os:nii|il(', |ir<':irMll\ iiii|iro(|iic.t.i v(% iiiiiy bo Indd 
UlifiU(M| iiiHirr iluM |irinri|il(', jicld for llir Make of ii, |iro- 
M|trrl,ivc ri'io of priiT. N'cry well ; wlii'ii lJi<iy lU'o Holil ii,l, a 
|)rolil, Irj: IIk^ owiinr Itn taxed on lJia,|, |iroi'il.: \l will jx^ tiiiio 
enonjdi lli(\n, eMjteeially a.M men do nol hke |,o hold iinpro- 
(liieliv(^ forniM of |iro|i(irfy. 1 1' may also he ohjtM'hHJ, fliaf, 
under IIiim |iruiei|ile, waj^'i^H, llio roHidf (d' [x^'Mona.! \uu\ 
jirfd'eHHionaJ exertion, wonid he l.axed jn.d. iJie Hainn \\h 
jirolifH and renl;i, I lie rcMidl. of |)revioiiMly lu^eiiniiiJaXiMJ 
|Mo|ierly. Very well; lliey on|;hf l(» lie Ho laxeil. ('an 
anyliody i;ive a, iiolid reaiHtli why Iliey ontdil not lo he mo 
faxed? Hiie may Ha.y, iJiaf a |irofeHHiotial man i^irnin^r ^ 
larjH^ ineome, on w hieh htx(^M \\.n^ paJd I he Maine a.M on a, Mi mi 
lar income of it laiel |M'o|irielor, dyiii!;, leaveM (o liiM children 
no fnilher mean;: of eariiiii|';, while Ihe land |iro|irie|(ii,, 
d\iii<;, docM leave ,'iiii'li iiieaiiM. (iraiili'il; jinl, Mie land in 
come coiilinncM to |ia\ laxcM, w liile thai |iroh\MMioiial income 
docM nol! (Mlicr iiiemhcrM of (he |irofe;iMioii will do I ho 
hiiMiniv'^H wdiich Ihe foi iiK^r one would have done lia,d he 
lived, itiid llie\' will pay faxeM on Ihe income fnmi \l. 
What a, man Iraii'imilM to his children, \\helher w. |n'i<af 
iiaiiK^ or n, |;'reH,k (\'tla.f(s Imim nolhini;' to do wilh Ihe amoiinl 
nf fax(^H iJiaf h(t oii^jchf In pay whih* h(^ liven. 



TAXATION. ,0-17 

Tlicro \h !Ui illusion ii.hoiil, huid.s ;ui(l r(;;i,l |»r(»|)»!rl,y 
tli!i,l, needs U) he (li;;si|);i,t(!(l hefore men will iin(l(;rsl;i,n(l 
(;l(;;irly l,li(! wlioh; iniil-Ler ol' 'l';i,x;d/i()H. Willioui (jonsl-iuil, 
w!iielil'nln(!M,s juid lorciHi^'lit,, wilJioui coriHtarit ci'i'orln in 
itn|M'(»vi;nienl.s ;i,n(l repairs, JiJniosI, cvcvy I'orni of r(;;i,li/,e(| 
property will r;i,|)i(lly <lel/(;iionil-e and l>(;eoMi(! iinjtrodnelJ V(!. 
Liuid (!V<!n in (jr(;!i,l, l»rit,;i,in, wJKire huid is searec;, iH only 
worlJi ;i,l)onl, iwcinl.y-li ve y(;;i,rs' I'enl, ; and willioiii, ilio 
cxcrcJHo <>r ii)i()lli;^n!nco and will pioixiiLy (;oa,s(!iS to bo. 
Properly Iuih Uh hirth in HcrviccH ex<;h<vn,(i<ul ; Herviven ex- 
chanf/cil f/ivf, rim to (/aina ; Uixch can, only he paid out of 
them ijainH ; they ouyhl to he proportioned to the amount of 
thene yainH 'without any reference to the clanH of exchanyeH 
prodnci.ny them ; white the riyht to tax on the part of the 
government ak connrcted with, a Hcrvuw, rendered l>y ijovcdv- 
ment, and holh yrown out (f and in limited hy the riyhl to 
exch.a.nye on th.e part of the citlze/nH. 'Vhv,w, considernlions, 
l.lioMJ^li (Jiey in;i,y <;xelude iJie, piopfiiil.y of a poll |,;i,x, are 
eonsisienl wilJi inosl; oUier lornis of l,ax;i,lion, ;uid |^iv(; 
unil-y 1,0 l,lieni. 

4. Does il, nol, Follow Ironi all I, Ik; pi'ee,edinn-, (,liat, ;i sin^h; 
and universal Inoomk-Tax would j)rove l/li<; \h;h\j iojni of 
wli!i,l, is in il,M own njiXuic; a, Hul)l,r;i,el,ion from iJi(! j^ains 
of I,Ih! governetj for iJie ni!i,inlc,n;i,n(;e of (ilov(;rnnienl,? If 
tlio a|)j)roxiniaLo iunouni, of Ineome eould in :dl e;i,ses he 
ascciriainod, and if no olJu'.r form of f;i,x wei'o JevitMJ upon 
ilic Harno porsons, iJiis would seem (,o he ii, [)(;rf(;(;ily ihkjx- 
ccption;i,hle mo<l(; ol 'I';i,x;i,l,ion. The only sources (»f IneouK! 
aro iln'(!(; : Wii,<4(!S, I'rolifs, Kenl,H. IL (lo(!S not, secun tlial 
^iftH arc l(!f^il,ima(r;ly l,ii,xahl(!; ih(!y Jio ouisifh; Mm; (ield. 
of (!xeli;i,n^'e ; they sprinj^' from sy m|);i,(,liy, from henevo- 
l(!ne(!, froiri dufy ; a,nd while exefian^n; niust claim a,ll l,liat 
fairly Itelon^rK to i(,, ii nnisi 1)C earcd'ul nol, io flirow dis- 
courage nnc mis inio ihe ;ulJ!u;eni hui disiinci fields of 



648 i'iMN(;iiM.i;.s oi'' roMiicAi. kconomy. 

moi'iils, llciuti!, it iiiiiy well bo (jiuislioiiodwluither legacies, 
be(iti(^iilliiiu!iits, j^'ifts to eliiii'i(al)l(! and ediiealioiial institu- 
tions, and gills lo indivi<iu;ds iirocecding Ironi I licndsliip, 
gratitude, or other such inipulsi;, arc propeily suhjcjct to 
taxation. 'I'he property is laxahh' in the hands of the 
donoi-, and ni;iy he in th(! hands of tiic recipient, hut. the 
passage I'roni one to the otiicr oiigiit to he unohstrucUid hy 
a tax. (lifts, tluui, exeeptc(l, and plunih'r, which is out ol' 
the (picstion, the; sources of incoiui; arc few and sinij)l(?, 
and thiM'c is no gi'c^at diriicuity in ever\' man ascm'taiuing 
about wliat his annual income is. iJccausc! this incoiue, 
exactly ascertained, (exactly iueasur(\s thct gains of his 
oxchang(.'s loi- that year, a tax upon that income is the 
fairest of all possil)l(i forms of taxation, and might he made 
with advantage, in time, to suj)ei'se(U! all other forms. 

Superlicinl objections may be; easily raised, :in(l are 
raised eonst-anlly in tJu! United Statcis, agniust any form 
of an income-tax. Iu'feren(!e is often had to our national 
exporienee with such a lax during and just after tin; late 
(^ivil War. The truth is, that tax was thrown on in addi- 
tion to, and in no propel' relations with, a hirge number 
of other national taxes of all S(trts, good and biui ; it was 
no possible exjtei'inKiut in Taxation, bcu-ause there was no 
0[)j)ortunit y of watching its o|teralion separati^ from that 
of other and coidiised forms; indnstr\' of all kinds was 
d(MuoraJi/,e{| by the war, and still more \)\ u. deprcciatcil 
and abominabl(! j)aptU' monc\' made legal lender i'ov all 
debts; and tlu^ tax beea,me unpojndai- in inllncniial cpiar- 
tors for certain reasons not inherent in the nature of tin; 
tax, and was disconlinucid in conscMpicnce. In order to be 
fairly tustcMl, an income-tax should either hv exclusive, all 
otiuu- ta,xes being intermitted h»r the time being; oi' at 
liMst levied simply in itself in connecli(tn with a few olhci- 
simple taxes, each of which can be watched in its in- 
eidcnci! and results scparatcdy from the others. 



TAXATION, 549 

Great Britain derives its national revenues almost wholly 
from five sources; namely, (1.) Excises, say .£27,000,000 
annually; (2) Customs, say £20,000,000; (3) Incomes, say 
£12,000,000; (4) Stamps, say £12,000,000 ; (5) Postals, say 
£9,000,000. Tiie roinuining, say £10,000,000, come from 
miscellaneous sources. One feature of tlie English Jncome- 
tax is, that it is varied from time to time acujording to pre- 
vailing' national needs, the rate having been lifted from 2^i. 
to 16d. per pound of income, according to estimated expendi- 
tnr(!s. In 1857, it realized in our money !f)80,255,000. In 
1800, tlie largest year, our own national income-tax realized 
$60,894,135. By varying the rate to the pound of income 
according to the prospective wants of the Exchequer, the 
English have found for about forty years their income-tax 
to be the most uniform, unfailing, expansive, and respon- 
sive to control, of all their fiscal expedients. 

The Prussians, too, ai-e a])plying an income-tax as a 
means of raising revenue with good success. There, as 
in England it is somewhat complicated with other kinds 
of taxes, and cannot exhibit itself altogether in its own 
nature as if it were exclusive., such as all S(;ientiiic econo- 
mists would like to see it tried somewhere on a large scale; 
and the (Icirmans have a different method from the English, 
of making the tax more or less flexible as circumstances 
vary. The English change the rate of the tax to the unit 
of income : the Germans graduate the tax to different 
classes of income-receivers. Eor example, those persons 
having an income between 420 and 660 marks a year pay 
84 pennies (^pfenni</e) as income-tax ; persons in the next 
higher class pay 164 pennies a year ; those in the class, 
whose maxinnim income is 6000 marks, pay 44 marks and 
80 p(^nnies a year; and iill jx^rsons whose income does 
not ]'ise al)ove 420 marks are not subject to this tax. ():i 
account of hard times a few years ago, liismarck brought 



r>r>0 I'KINCII'MOS OK I'Ol.ri'H'Ali ECONOMY. 

it !il)out, iliiiL all the cliiHseH iijclii(l(!(l botwcon 420 iiiid 0000 
]ii;ukH ot" inc-oini! HJioiild l)o wholly (ixciiijifed fuoin ono- 
(|ii;irtoi'',s iiixoH. A ninrk is 'Jt5.Hl! ol' our cciiLs ; and a 
pj'ciuiii/ is oiHi-inuidriidtli of ii iiiaik. 

|{{!sid('s llio (M)iii|)l('l() liannoiiy of an IiicoiiKi-tax with 
the, j^('ii('i;il |)iiiicipl('S of Taxation, as alicady iiiifoldt'd, 
it has sttvi'ial spccHii; advantages ovtir oth(!i- forms of 
'1 axes. 

a. It has no tendency to dln/iir/) priacH. W(!i(! thore no 
taxation uxt'(![tl on Incomes, and wore all the ineoines 
I'ightly ascei'tiuncd, th(5 prictcs of everything would bo just 
as if there wei(! no taxes at all. Taxation would then be 
like the atmosphoro, pressing' o(]vially on all jtoints and 
consciously on none. It is tlirough tiicks wrought on 
Prices, that the greatest and most wid(dy spread injustices 
have Im'cu done; and sulfere(l in this conntry during the 
past thiity yeiirs : a depreeialcd Mon(>y, whether of [)apor 
or silv(!r, niises some ])ric(^s and not others, and some; i)riees 
before otluiis, and thus distributes its misehicds iuic(pially; 
prolcetionist (-aril'f-tax(!S play of design fantastic lii(;ks 
with priei^s, raising sonu; and dtipi'essing others, thus 
working monstrous injustice on aviistscale; iiiiil idmost 
all forms of taxation become^ uneipnd and unjust thiough 
their diverse action on l*l■ic(^s. l>ut a universal Income- 
tax eX(!lusive of idl others, properly levied :uid fully 
responded to by tlu^ payc-rs, would have no inllucnce at 
all upon piiecs, could by no |)ossibility work (!ss(ud/ial 
iniusli<-e, and would he certain to be very produetivo 
without bocroming burdensome. 

b. A second great advantage of su(di an Income-tax in 
such a country as this, woidd manifesto be, that all men 
would be olili'>'<M| til keep exact pecuniary accounts; moi'e 
ordiuly nu^thods of Ibisiness would generally prevail ; 
most n»en would know much bettor than tluty do now 



TAXATION. 551 

how they stand themselves, and whom of others to safely 
trust; sudden commercial failures, indeed failures at all, 
would be less frequent and severe ; and everything in the 
business world would be more aboveboard and better 
known. 

c. A third advantage of such an Income-tax, and the 
chief, would be its tendencies to fiscal simplicity. Com- 
plexities in the Exchequer are always and in many ways 
expensive to the People. In this country, where distinct 
taxes have to be paid, first to the local municipality, then 
to the State, and last to the Nation, Income-taxes, were all 
others abolished, would have this striking advantage, that 
the local municipality might best ascertain the incomes of 
all its legal residents once for all, no matter from what 
sources local or other the incomes be derived ; and, having 
collected its own local per centum^ the State and then the 
Nation would each have to collect an additional per centum 
on the same income for themselves. Or, better still, by 
an amicable arrangement, neither party yielding up its 
inherent right to tax, one set of officials might ascertain 
the incomes and also collect the tax for all three govern- 
ments once for all. It may be long, it doubtless will be, 
before we shall ever come to such economy and simplicity 
and fiscal beauty as this is ; for the pride of sovereignty is 
very strong both in State and Nation ; each is jealous of 
the powers of the other, each is fond of the pelf and 
patronage- and officialism connected with the gathering of 
the taxes, and each would be disinclined to yield anything 
to the other ; but the fact remains, that, as it is of acknowl- 
edged moment to have the single Cesar's image and in- 
scription on every piece of the national Money, so it is of 
almost equal moment in point of cheapness and clearness 
and simplicity to have the hand of Caesar seen but once in 
taking in the Taxes. 



562 IMtlNCIIM.KS (»K 1'C)].1TU;A1. KCONOMY. 

Ol)j(!(:tioii li;is luicii often riiLsed to any loitii of Iii(H)niG- 
tiix Iroui the publicity of priviUci affiiiis rcsiilliuL;' from it. 
It was just this tiiat piovcd falal lo our own lirst cixpcri- 
iiicnt ah)iig this lino of national acliou. liiit Ihcio socinis 
to 1)1! some confusion of idciis iu (•oMucclion with this 
phi'asi!, " publicity of piivate allaiis," for rcaJly, so far as 
taxation is concerned, there ought to be uolhiii^' " j)rivate " 
about the amount of auy man's iucomc, or tiu; a^'^'rcioate 
of all forms of his propiu'ty, inasmuch as v.xrvy man has a 
ri(/hl to kuovv, that all his neighbors art; contributing pro 
rata witii himsi-lf to su[)port that (Jovcrnmcnt, wliich is 
coninioii (o him and tluuu. 'IMierc; is nothing, at Iv.nsl ihv.vQ 
should be nothiuL;', "•private''' iu connection w ilh ( iovcrn- 
nicnt ; that is the one; absolutely '•'' piihUc^'' thing of the 
world; least of all should there be anything prival(! in the 
UKitt-er of |)ubli(^ taxes, since in l)ciuing up tiic buidt^is of 
(Jovernnicnt- all the citizens are alike co|)ai1nei-s, and in 
this view and for this ])ur[)os(i (^ach has a right to demand 
a look into the books of all tlm others. 

Another objcuttion has often been raised, namely, that 
some men will never give in :i true! icturn of their Income. 
Ah! but they can bt! made to do so, iis the b)rms are per- 
feet(ul, as fraudulent returns are promptly punished by 
additional assessment and collection, and as the nuunory 
and conscience of tlu^ payers are (pncdvcned by the aetioii 
of a, healthful public opinion brought to bear through the 
annual [)ublica.tiou of the list of tlu'ir i-eturns. Men a,r(> 
not so isolated from ea(di other as that a man's neighbors 
do not know pretty well tlu' general aniouut of his income. 
There is the additional security of an oath, of the fear of 
])unishmcnt, and of the wish to stand well with one's class. 
At the worst, it may lu^ said, that evasions and fraud ac- 
coni])any also all other forms of Taxation. 

5. What is the difference between DlKECT and Imdiukct 



TAXATION. 553 

Taxes ? This is an old and proper division : we must noAV 
see what is the economical basis of it. A direct tax is 
levied on the very persons who are expected themselves to 
pay it ; an indirect tax is demanded from one person in 
the expectation that he will pay it provisionally, but will 
indemnify himself in the higher price which he will receive 
from the ultimate consumer. Thus an income tax is direct, 
while duties laid on imported goods are indirect. There 
has been a great amount of discussion on the point whether 
direct or indirect taxation be the more eligible form; but 
the reader of penetration will perceive that there is not at 
bottom any very radical difference between them ; each is 
alike a tax on actual or possible exchanges, with this main 
difference, that men pay indirect taxes as a part of the 
price of the goods they buy, without thinking perhaps that 
it is a tax they are paying, and consequently without any 
of the repugnance that is sometimes felt towards a tax- 
gatherer who comes with an unwelcome demand. Thus 
indirect taxes are conveniently and economically collected. 
Especially is this true of impost taxes ; since one set of 
custom-house officers may collect easily and at once the 
government tax which is ultimately paid by consumers all 
over the country. The taxes also levied by the present 
United States internal revenue law are indirect taxes, 
whereby the government gets in a lump what is afterwards 
distributed over many subordinate exchanges. The counter- 
vailing disadvantage of indirect taxation, however, is, that 
the price of the commodity is usually enhanced to an extent 
much beyond the amount of the tax, partly because it is 
a cover under which dealers may put an unreasonable de- 
mand, and partly because the tax, having to be advanced 
over and over again by the intermediate dealers, profits 
rapidly accumulate as an element of the ultimate price. 
Direct taxes are laid either on Income or Expenditure. 



654 PRINCIPLES OF POLITICAL ECONOMY. 

As the difficulty of a tax on a person's whole expenditure 
is much greater than one on his whole income, inasmuch as 
the items are more numerous and more diffused, it is only 
attempted to levy a few taxes on some special items of 
expenditure, such as those on horses, carriages, plate, 
watches, and so on ; but as these do not reach all persons 
with any degree of quality, they are so far forth objection- 
able. A house-tax, levied on the occupier, and not on the 
owner, unless he be at the same time the occupier, would 
be a direct tax on expenditure every way unobjectionable. 
Taking society at large, the house a man lives in and its 
furniture are probably the most accurate index attainable 
of the size of his general expenditures. They are open to 
observation and current remark ; they are that on which 
persons rely more perhaps than on anything else external 
for their consideration and station in life ; the tax could be 
assessed with very little trouble on the part of the assessor ; 
and it is well worthy the attention of our State and 
National Legislatures, whether such a tax, if more taxes 
should be needed, would not be more equal and more easy 
of collection than any others now open ; or whether it 
might not with advantage take the place of some of the 
complicated and objectionable taxes now laid. Direct 
taxes have this general advantage over indirect, that they 
bring the people into more immediate contact with the 
government that lays the taxes, and subject it to a quicker 
supervision and more effectual curb, whenever its expendi- 
tures grow larger than the p602:)le think it desirable to incur ; 
perhaps they have this general disadvantage over indirect 
taxes, especially over imposts, that the number of officials 
required to assess and collect them is larger, thus swallow- 
ing up a part of the proceeds of the taxes, with this liability 
also of bringing the people into an attitude of hostility 
to the government and to its contemplated expenditures. 



TAXATlOIfT. 555 

But whether the taxes be direct or indirect, or whatever be 
their form, except it be a poll-tax, which is questionable at 
best, they are laid upon Exchanges, and are designed to 
withdraw for the use of the government a part of the Gains 
of exchanges. 

6. Are Credits a legitimate subject of Taxation ? The 
answer is very easy. Unless this whole treatise from begin- 
ning to end be unsound. Credits stand upon the same eco- 
nomical grounds as Commodities and Services, and so may 
be taxed for the same reasons as those may be taxed. 
Whatever is bought and sold is properly enough taxed, if 
the needs of the government require it, and if such taxa- 
tion would be productive and not too unequal. As Values 
always spring from the action of individuals, so the inci- 
dence of taxes is upon persons rather than upon things ; 
and the question is what can a man sell, or what has he 
already sold, on the gains of which sale the government 
may lay some claim ? If I have a note and mortgage on 
my neighbor's farm, I can sell it at any time to a third 
party ; it pays me interest ad interim^ and I can collect it 
at maturity. Government therefore properly taxes me for 
that credit in my possession. It is a part of my property. 
The holders of the government bonds occupy an economi- 
cal position exactly similar. They have a lien on the 
national property and income. The credits they hold are 
vendible commodities. They are a jDaper bearing interest. 
They can be collected at maturity. They are indeed ex- 
empted by law from municipal and State taxation. That 
was a legitimate inducement held out to everybody alike to 
invest in the bonds. But there is no reason why the nation, 
having withdrawn them from town and State taxation, 
should not itself all the more subject them to their fair 
share of the national burdens, unless indeed it be claimed., 
as perhaps it fairly may be, that the exemption enables the 



556 PRINCIPLES OF POLITICAL ECONOMY. 

government to borrow at a just so much lower rate of in- 
terest. The income at any rate derived from the bonds 
should be taxed as soon as any other income is. It is no 
longer any ground of merit, even if it ever has been, for 
persons to buy the government debt. It is a mercantile 
transaction, and should be so considered in relation to 
taxes. So of other mercantile credits. They are taxable. 
Massachusetts has had a great deal of trouble of late years 
both in the Legislature and otherwise about the taxation 
of mortgages on taxed Massachusetts farms and other real 
estate. The question is intricate and full of difficulty. 
Some things about it, however, are clear. The note and 
mortgage is a different jiieee of property, and a different 
kind of property, from the real estate. It is a peculiar sort 
of credit. The owner of it is a different person from the 
owner of the real estate. Either bit of property may change 
hands without changing the status of the other. The 
question of taxing the note and mortgage, like the question 
of taxing the bonds, seems to hinge on the effect it would 
have on the rate of interest of the obligation secured by 
the mortgage. If the holder of the mortgage expects to 
have to pay a tax upon 'it, he will try to get a higher rate 
of interest on his money loaned and thus secured. Whether 
mortgagees taxed as such aan throw off the tax upon the 
mortgagors in a higher rate of interest on the money loaned 
is a point much disputed and at least doubtful. General 
principles would lead us to favor the taxation of note and 
mortgages in the hands of their holders, so long as such 
cumbersome forms of taxing as prevail in Massachusetts 
are maintained. A universal income-tax would solve this 
difificulty also in a moment of time. 

7. Has Political Economy anything to say about the 
Rate of taxes per unit of that which is subject to tax ? 
Yes ; it has an important word to say upon that point. 



TAXATION. 557 

From the very nature of Taxes in general, and in order 
that they may be most productive in the long run, as well 
as discourage as little as possible the Exchanges which 
would otherwise go forward, the Rate of taxes ought always 
to be low relatively to the amount of Values exchangeable. 
A high rate of tax not infrequently stops exchanges in the 
taxed articles altogether, and of course the tax then real- 
izes nothing to the government. As the only motive to an 
exchange is the gain of it, the exchange ceases whenever 
the government cuts so deeply into the gain as to leave 
little margin to the exchangers. The greater the gain 
left to the parties, after the tax is abstracted, the more 
numerous will the exchanges become, and the greater the 
number of times will the tax fall into the coffers of the 
government. In almost all articles, consumption increases 
from a lowered price in even a greater ratio than the dimi- 
nution of the rate of tax ; so that the interests of consumers 
and of the revenue are not antagonistic but harmonious. 
On articles of luxury and ostentation, and on those, such 
as liquors and tobaccos, whose moral effects are clearly 
questionable, very high taxes may properly enough be laid, 
because their incidence will hardly tend to diminish con- 
sumption, and it would scarcely be regretted if it did; 
but with this exception, duties and taxes should be levied 
at a low rate per centum as well for the interest of revenue 
as of consumers. It is to be added, however, that the 
taxes even on these articles may be too high to meet either 
a revenue or a moral purpose. The internal tax of two 
dollars a gallon upon distilled spirits was of this character. 
Experience has demonstrated that a less tax will produce 
more revenue, and the drinking of whiskey, bad as that is, 
is less culpable than the endless frauds on the government 
provoked by the high tax. 

8. What is the difference between Specific and Advalo- 



558 PRINCIPLES OF POLITICAL ECONOMY. 

REM Taxes, and why should the student take careful note 
of these both singly and combined ? These terms are used 
more particularly in relation to Tariff-taxes, but there is 
nothing in the distinction itself so to limit its application. 
A Specific tax is a tax of so many cents or dollars on the 
pound, yard, gallon, or other quantity measurable : an Ad- 
valorem tax is a tax of so much per centurn on the invoiced 
or appraised money value of the goods subject to the tax. 
Specific taxes, accordingly, are far simpler and steadier in 
their operation than the others ; it is easy to ascertain the 
weight or number or other quantity of valuables, and then 
to apply a fixed ratio to them in the way of tax ; the payer 
knows or may know beforehand precisely how much the 
tax will amount to, and consequently just how it is to affect 
the profitableness of his current trade ; and on these and 
other grounds specific taxes are preferable to advalorem 
ones. To be sure, this form of tax involves that high- 
priced grades of an article pay no higher taxes than low- 
priced grades of the same, but this consideration is largely 
overbalanced by those of convenience and productiveness. 
Advalorem taxes, on the other hand, are never calculable 
beforehand ; because Values from their nature are variable, 
and as a matter of fact do constantly vary. Imported goods, 
for instance, bring with them the invoice of the seller giv- 
ing the values at the place of exportation. But the impor- 
ter is by no means sure that the tax will be levied upon 
that valuation. The home valuation will of course be 
higher, otherwise the goods would not be imported. When- 
ever it becomes the policy of a country, as of the United 
States at present, to keep foreign goods out to the utmost 
extent possible under the law, which law is itself devised 
on purpose to keep them out, there will always be sus- 
picions and charges of undervaluations at the place of 
export ; there will always be a motive on the part of the 



TAXATION". 559 

foreign seller or agent thus to undervalue the goods in the 
interest of the importer, so as to lessen his tax, and so 
increase the seller's market ; such abnormal tariff-taxes are 
the enemy of mankind in general, and, therefore, there will 
be no end of deceits and evasions at both terminals of the 
ocean-route, and " custom-house oaths " will become a by- 
word of course ; the importing, or rather the non-importing, 
country will keep in pay an army of spies and informers on 
both sides of the water in order to prevent what is called 
" frauds," and another army of " appraisers " at its custom- 
houses in order to discredit the invoices, and to jump at a 
valuation of the goods, on which the tax shall be levied; 
and honorable merchants and importers, without any fault 
of their own, are liable to get entangled in the miserable 
meshes of such goings-on, as happened in a memorable 
case in New York a few years ago, and be mulcted in fines 
(perhaps to immense amounts) one-half of which shall go 
to the informer. 

There are too many practical difficulties connected with 
either of these two forms of tax to make it proper to com- 
bine the two upon the same article of merchandise. To 
combine them thus is one of the tricks and traps of Pro- 
tectionism. That makes it next to impossible for any 
importer to tell beforehand what the two taxes will aggre- 
gate, and quite impossible for any ultimate consumer to 
tell how much of his price paid is due to the demands of 
his Government. Opening the official tax-book at ran- 
dom, we quote as follows from a single page : " Webbings, 
pound 50 cents, and 50 per cent " ; " Buttons, pound 50 
cents, and 50 per cent " ; " Suspenders, pound 50 cents, 
and 50 per cent " ; " Mohair cloth, pound 30 cents, and 50 
per cent " ; " Dress trimmings, pound 50 cents, and 50 per 
cent." Besides these, on that same page, there are 14 
other articles under similar compound taxes, mostly at 50 



560 PRINCIPLES OF POLITICAL ECONOMY. 

cents a pound and 50 per cent additional, this as under 
the Tariff as it was 1874-83 ; but all these 18 articles were 
put in 1883 at '■^ pou7id 30 cents^ and 50 per cent.''^ 

9. What are the economical reasons for an Excise or 
Internal-Tax in connection with Tariff-taxes for reve- 
nue? A tariff-tax, whether for revenue or other purpose, 
raises the price by so much of the article subjected to it 
and actually imported ; now, if similar articles of the same 
quality be made or grown at home, and be not subjected 
to a corresponding tax, these will inevitably rise to the 
price of the foreign, with the tariff-tax added, for there is 
no possible competition or conceivable impulse that can 
keep it lower than that ; so that, in that case, the govern- 
ment gets in revenue, only the taxes paid on the part 
imported, while the people are compelled to pay in addi- 
tion virtually the same taxes on all that part produced at 
home. Why should not the government have the pro- 
ceeds of the last as well as of the first ? The last is the 
direct result of the first. If now, a corresponding excise- 
tax be put on the domestic product also, the government 
will get in revenue all that the people are obliged to pay 
in consequence of government-tax. This is just: the 
other is wantonly unjust. 

Take an illustration, please. The national Census of 
1890 gives the Pig-iron production of the Census year as 
9,579,779 tons of 2000 lbs. each. This is an increase over 
the production of the Census year, 1880, of 255 per cen- 
tum, — 3,781,021 : 9,579,779. Fortunately the present Cen- 
sus adds the net imports for the two years respectively, 
with these results : the per capita consumption of Pig-iron 
in 1880 was 196 lbs., of which 126 was home production, 
and 70 of foreign import ; while in 1890 the consumption 
was 320 lbs. per capita, of which 299 was domestic, and 21 
foreign. That is to say, in 1880, 65% of the pig-iron con- 



TAXATION. 561 

sumed in this country was of home production, and 35% 
was of foreign production. At that time the tariff-tax on 
imported pig was $1 per ton. Government secured this 
tax on a little more than one-third of what was consumed, 
while a small circle of citizens banded together for that 
purpose secured for themselves this tax on the remaining 
two-thirds of all pig-iron consumed that year, a7id the 
whole peojjle paid the tax on the entire three-thirds. As we 
shall see fully a little further on, our national Government 
has no constitutional or other right to tax the people one 
penny except to supply its own needs as such ; if, there- 
fore, the 87 impost per ton were put on as a legitimate 
tax, there should have been an excise or internal-tax to the 
same amount put on the pig-iron produced at home. That 
would have cost the people no more, and the Government 
would have gotten twice as much more as it did get from 
the tax. If there be an axiom in Taxation, one point 
indisputable by any rational human being, it is this : The 
Treasury should receive all that the people are made to give 
up under a public tax. 

In 1890, this particular matter came to be much more 
flagrant. Only 21 parts out of 320 parts were in that year 
foreign pig-iron; that is, a little less than 7%, while 93% 
was domestic pig-iron ; the tariff-tax at that date was .3 of 
a cent per pound, or $6.72 per ton of 2240 lbs. ; the tax 
was sufficient practically to exclude foreign pig, although 
the Scotch pig as more fluent is very much desired here 
in some branches of the iron manufacture, particularly in 
making steel rails ; Government received the proceeds of 
its own tax on only one-fourteenth of that, which really 
paid the tax on its whole fourteen-fourteenths ; where did 
the tax on the thirteen-thirteenths go to? If this were a 
matter of genuine taxation, ought there not to have been 
an excise on the domestic corresponding to the impost on 
the foreign ? 



562 PRINCIPLES OF POLITICAL ECONOMY. 

Precisely that is what we do in the case of other articles 
not pj-otect ionized. For example, in the fiscal year 1889, 
the excise or internal-tax on " distilled spirits and wines " 
realized to the Treasury 174,312,200, and the tariff-tax on 
the same realized $7,123,062, total, 181,435,268; on "malt 
or fermented liquors " the same year, the excise was 
123,723,835, the impost only $663,337, total, $24,387,172 ; 
and on " tobacco " the excise was $31,866,860, the impost 
$11,194,486, total, $43,061,346. These figures are official. 

An ostentatious display of private figures and price-lists 
is often made, with a design to show that the prices of 
home-made products protectionized are not lifted so high 
to consumers or buyers as those of foreign-made products 
with the tariff-taxes added. The main sophistry in these 
figures is this : the pure assumption, that the quality of 
the home-made products alleged to be cheaper than the 
tax-added price of the foreign, is the same as that of the 
foreign. Unluckily, things are often called by the same 
names, and even described by the same technical terms, 
which are very different sorts of things in reality. A 
subordinate sophistry in these figures, often allowed to 
pass, but not requiring any sharp insight to detect, is, that 
the selected price-lists are not the results of an average 
extending throughout years, but are picked at points when 
(owing to other causes than the taxes) the current prices 
of protectionized home products are lower than the average 
of the years. One easy way to expose the putters-forth of 
these figures, as not themselves really believing in them, 
is, gravely to propose to lower or remove the tariff-taxes, 
which (it is alleged) do not have the effect to lift much, if 
any, domestic prices. This simple experiment has several 
times been tried, with ludicrous effect upon the figure- 
mongers ; they cannot spare one iota of present taxes on 
foreign products : if the smallest fraction be removed, they 



TAXATION. 563 

can no longer make and vend their wares ; indeed, heavier 
tariff-taxes are needed at this very moment, in order to lift 
the domestic prices higher ; and, presto ! another set of 
figures are forthcoming at once to prove the disabilities, 
either in respect to Labor or Capital, under which the poor 
protectionized producers are staggering in order to keep 
the home market ! 

Another complete refutation of the false position of the 
protectionists, namely, that the domestics are not lifted in 
price on the average to the price of the foreigns of the 
same quality with the tariff-taxes added, is their utter 
failure and inability to project any reason in the nature of 
things or the motives of men, why the home-prices should 
NOT he thus lifted! What impulse, pray, on the earth or 
under the earth, can serve to depress them on the whole 
average heloiv that point ? Does any one say, that " domes- 
tic competition " will depress and keep depressed the prices 
of home goods of the same grade below the prices of the 
foreign taxes paid ? Did this astute objector ever hear of 
" domestic combination " to keep prices up to the highest 
possible point ? To shut down mills and factories, to avoid 
depressing prices ? To sell surplus stocks abroad for what 
can be gotten for them, in order to make prices at home up 
to the usual scarcity point? In July, 1890, the Boston 
Commercial Bulletin, the special organ of Protectionism in 
New England, and special spokesman for the wool-and- 
woollens industry, spoke thus of that industry, after 30 years 
of public hiring the growers and manufacturers to carry 
it on with a bonus, just at a time when the worsted tariff- 
taxes had been advanced, alleged custom-house frauds 
stopped, and still higher tariff-taxes on their way from the 
so-called McKinley Bill in Congress : " The woollen goods 
industry was probably never in much worse condition in this 
eountry. The slowness of its development may be judged 



564 PRINCIPLES OF POLITICAL ECONOMY. 

from the fact, that, despite an average yearly increase of over 
a miUlo)i in population, the increase in the number of wool 
cards in this country is less than a hundred a year, tvhile the 
proportiofi of woollen machinery shut dotvn between June 1 
and September 1 bids fair to he the largest ever knoivn. The 
market is dull, deadly dull. The large amount of silent 
machinery is making its presence felt. The sluggish sales of 
wool are due to most of the big mills being closed. Depression 
in business is the cause of so many woollen mills closing, and 
the news comes this week of four woollen mills, three in the 
Bay State and one in Pennsylvania, that tvill close for 
periods ranging from two iveeks to several months."' 

Not only is it true, that the purpose and usual effect of 
tariff-taxes is to hoist the price of domestics protectionized 
up to the limit of the corresponding foreigns with the taxes 
added, but it sometimes happens that the home products 
are carried for considerable periods at a level a good deal 
above that. A conspicuous instance of this, commented on 
at the time by all the Boston papers, was brought to notice 
a couple of years ago in connection with the steel beams 
purchased by the city for the new and noble Boston Court- 
Ilouse. Tlie beams were bought in Belgium at |28 a ton, 
paid at the Boston Custom-house " one and onefourth cents 
a pound,'' that is, just $28 a ton, making their cost to the 
city '156 a ton. But domestic steel beams of the same gen- 
eral description were selling here at -173 a ton. Their 
price had been raised here twice in one summer, about fifty 
cents a ton each time. One of the conglomerated curses 
of cutting off by law the natural competition in such prod- 
ucts is, that the unnatural competition still permitted by 
law is sluggish in coming into operation, and the monopoly 
becomes even more such than was intended by the law. 

The tariff-tax on steel rails is 117 a ton, formerly $28 a 
ton, proposed in the McKinley bill to be reduced to $11.20 



TAXATION. 565 

a ton. That even this last is wholly needless, or any tax 
at all on steel rails, is proven by the fact, that in March, 
1890, Pittsburg rail-makers sold 5000 tons of rails at Vera 
Cruz at lower prices than the corresponding European 
rails were offered for in Mexico. Another fact that proves 
the same thing is this : James M. Swank, the mouth-piece 
of the Pennsylvania iron and steel interests, describes the 
year 1885 as one of unprecedented prosperity in the steel- 
rail industry, and gives a formidable list of new establish- 
ments opened in that year. But steel rails were much 
lower in that exceptional year than in any year before or 
since. A tariff-tax of $5 a ton would have been in that 
year absolutely prohibitory, for steel rails were worth less 
than 128 a ton the greater part of that year. Yet that 
very year was the year of greatest prosperity, Mr. Swank 
being the competent witness ! But the fact in general, 
which ought to overwhelm the iron and steel protectionists 
with confusion, if they were capable of any such emotion, 
is, that iron and steel in every form of both, owing to the 
unprecedented bounty of God to this good land, costs less 
both in labor and capital here than in any other country 
in the world. The official figures of the current Census 
demonstrate this, authentic statements of practical oper- 
ators at the iron mines and furnaces and foundries through- 
out the Tennessee Valley confirm it, and there is not one 
particle of evidence to the contrary of any name or nature. 

Let the reader notice carefully the following quotation 
from a private letter to the writer, dated July 30, 1890, 
written by a graduate of this college, in whom all who 
know him have the fullest confidence : 

" We began to open the mines here just three years ago this 
Fall^ and began shipping the following Spring. Our price 
for the ore was then about $1.50 a ton., depending on the 
analysis. We mined in the oldfashioned way — with picks 



566 PllINCIPLES OF POLITICAL ECONOMY. 

ayid shovels — and 1 am safe in saying it cost us all we 
got for it. I know I was continually making drafts on my 
father to keep me out of debt. I did not figure on the 
cost at that time — / was afraid of the figures. My only 
thought ivas how to reduce the cost. We had a Steam 
Shovel in Pennsylvayiia., and 1 got my father to send it to me 
for trial in this ore. We found we could use it to advantage 
by usiyig also plenty of powder, and 1 was soon able to buy the 
second shovel. Of course ihat reduced the cost of production 
still lower, and as there was a market for all I could do, I got 
the third, and am 7ioiv putting in the fourth, and the fifth is 
bought and to be delivered inside of 60 days. This doubling 
up of the shovels made me get locomotives to carry the ore in 
the mines instead of mules. I have now two locomotives. 
You will understand how it woidd make a saving at that 
point. It would require 15 mules to do that work, and it 
could not be done so promptly. 

During the month of May we shipped about 14,500 tons 
with the use of three shovels, and at a cost per ton for labor 
and fuel and powder of 33 cents. We have reduced the cost 
on a week^s run, in good weather and ivith no lack of empty 
cars, to 29 cents, but it never came lower on the month's aver- 
age than 33. I expect this Fall, with five shovels instead of 
three, and two locomotives instead of one, to lower the cost of 
production. 

Our average price at the mines is |>1.20; ive sell some 
higher. I have just now taken a co7itract for 40,000 tons to 
be delivered between 7iow and the 1st of February, 1891, a^ 
$1.12^. This is the lowest contract price we have ever made, 
and likely that has ever beevimade hi this locality; but I did 
it to get into a different market. That ore is to go to Nash- 
ville — a distance o/120 miles. The reason for cuttiiig the 
price to get the increased quantity I will not need to explain 
to you. You taught it to me. The freight to Nashville is 



TAXATION. 567 

75 cents. To our other furnaces in Alabama, at Sheffield and 
Florence, the freight is only 35 cents. What other contracts 
I have at present are at $1.25. 

With three shovels we make from 600 to 800 tons a day. 
With one shovel we made from 150 to 250 a day. The varia- 
tion from day to day depends on the quality of the material 
we handle. 

The ore is all washed and picked and screened before it is 
loaded on the cars. A very important part of the work is 
the work done in the ivasher. It requires very expensive ma- 
chinery, and the wear and tear is enormous. 

We pay unskilled laborers ten cents an hour, skilled men 
as high as twenty-five. We work eleven hours a day. Our 
general foreman gets $100 a month.'''' 

Sugar and Molasses brought in through the tariff in the 
fiscal year 1889, -155,995,137. The quantity of domestic 
sugar and molasses relatively to the quantity imported is 
so small, that an excise upon it in accordance with the 
general principle of these paragraphs is not worth while, 
but would be far more just and rational than to offer boun- 
ties to the domestic producers out of the taxes paid by the 
consumers of foreign sugar. A " bounty " in this sense is 
at once an abuse of a good word, and an abomination in 
point of fact. For any Government, which is nothing but 
a Committee of all the citizens to attend to certain joint 
concerns of all, to abstract money through taxes from the 
pockets of a part of these citizens in order to reward another 
part for carrying on an unprofitable branch of business, is 
something equally repugnant to Economy and Equality. 

10. What, then, is the Bottom-Principle in the Mode 
of Taxation ? It is this : Relatively low taxes so adjusted 
on comparatively few things as not to disturb natural prices. 
The principle is simple : the problem is difficult ; but won- 
derfully less so the moment all attempts are given up to 



568 tKmciPLES OF political economv. 

foster any branch of industry whatever. Our legislators are 
not called upon to foster any industries. It is out of their 
beat. They cannot permanently do it, if they try ; and 
they do immense harm while they try. Their " bounty," 
instead of being a gift, as the word imports, is a haphazard 
bestowment of other people's money e^ sorted from them by 
public taxes. The problem becomes simpler every year of 
public experience under the practical design of so laying 
the public burdens as to realize to the Treasury the most 
money with the least possible interference with what would 
otherwise be the on-going of Exchanges in all directions. 
So relatively simple and easy has the English taxing 
system become, under this one leading design, that Glad- 
stone performed without difficulty the functions of Chan- 
cellor of the Exchequer in conjunction with the far more 
arduous and complicated duties of Prime Minister. 

Low taxes on few things. The opposite of this principle 
at either of its two points becomes at once pernicious. High 
taxes in general prevent exchanges altogether, by cutting 
in too deeply in the gain of them, which is the sole motive 
to them ; high imposts prevent importations, and of course 
destroy the profitable exportations consequent to, and con- 
ditioned on, such importations ; high taxes even on few 
things are apt to raise prices of other articles than those on 
which they are directly levied, and so become objectionable 
always, and unbearable whenever it is their purpose to raise 
such prices : taxes on many things, and even on few things 
every time they change hands, throw an indefinite burden 
on Exchange, whose weight cannot well be calculated 
beforehand, either by the consumer or by the government, 
through uncertainty as to the number of transfers. Once 
for all, and then an end. Exchanges are indeed the only 
legitimate subject of taxation, but not every specific and 
subordinate exchange. An attempt to tax all sales what- 



TAXATION. 569 

ever was followed in Spain, and will be followed every- 
where, by a sluggish indisposition to trade at all. Let the 
amount of the tax be definite, and let everybody be sure 
that when it is once paid government will produce no fur- 
ther claim, and industry will go along under heavy taxes 
better than under those nominally lighter to which uncer- 
tainty as to time or amount attaches. All the more ad- 
vanced governments have been simplifying of late years 
their systems of taxation, and collecting their revenue at 
fewer points, and under more tangible conditions, in order 
to interfere as little as possible with a free industry and 
free exchange. 

The subsidiary principle is important, namely, that all 
taxes should be collected by the government in as economi- 
cal a manner as possible, inasmuch as all direct and indi- 
rect costs of collection are so much added to the burdens 
of the People. This covers two practical points : (1) the 
number and efficiency of the tax-gatherers, and the whole 
outward machinery of collection, such as the custom-houses, 
offices of internal revenue, and so on. These, as they 
concern the whole people equally, should be separated as 
far as possible from party politics, and the inevitable cor- 
ruptions thereupon attendant. All the fiscal officers of the 
United States, from the Secretary of the Treasury down to 
the lowest tide-waiter, are liable to be changed every four 
years, and as a matter of fact are usually to a very large 
extent so changed, to the great detriment of the service and 
ultimate expense of the people, to say nothing of the moral 
losses and crevasses involved. (2) The tax-money should 
be kept out of the pockets of the people as short a time as 
possible, disbursement following quick upon collection. It 
is poor policy to gather taxes at the beginning of the year 
which will not be disbursed till the end of the year. Let 
the people use their funds till they are wanted at the 



570 PKINCIPLES OF POLITICAL ECONOMY. 

treasury ; and if the taxes do not then come in as fast as 
wanted, it is better to issue what are called in England 
exchequer-bills, and in the United States certificates of 
indebtedness, to be redeemed at the end of the year from 
the proceeds of the taxes, than to let the people's money 
lie idle in the treasury. The Secretary of the Treasury 
should have nothing to do or say about the circulating 
medium of the country, or the loanable price of the units 
of it, under any circumstances whatever. He is neither 
competent enough in Knowledge nor enough established 
in Integrity to be trusted with any such functions. 

11. Should there be any exemptions from Taxation? 
If the necessities of the State require it, government has 
the right to demand from all persons who are capable of 
making exchanges, and who do make them, something 
in the form of taxes. But it is every way better, when 
possible, that people of very moderate means should be 
exempted altogether from direct taxes ; and the payment 
of indirect taxes is a matter more in their own option, 
since they are at liberty to buy much or little of those 
commodities subjected to an indirect tax. In the State of 
Massachusetts, incomes not exceeding f 2000 are exempted 
by the law. If a house-tax should be levied, all houses 
below a certain grade of style and comfort should be ex- 
empted, and the tax pass up by easy gradations from those 
just taxed to the palatial residences of the rich. In the 
present age of the world, the well-to-do citizens of every 
country are able to bear without too great difficulty the 
burdens of the government, and nothing tests better the 
degree of civilization which a nation has reached than 
the care and solicitude it displays for the welfare of its 
poorer citizens. 

12. Who pays the indirect taxes'^ At a court ball, 
Napoleon the First once observed a lady noticeable as 



TAXATION. 571 

richly dressed and as wearing splendid diamonds, and on 
asking her name, found that she was the wife of a tobacco 
manufacturer of Paris; it occurred at once to the quick 
mind of the French ruler, that the State might just as well 
have those profits as an individual ; and the sale of tobacco 
in all its forms became accordingly a State monopoly, 
which now yields about 400,000,000 francs a year. That 
is indirect taxation. So is the British and United States 
tariff and excise on tobacco. Producers and dealers and 
bankers and companies add the tax demanded from them, 
and sometimes more than the tax under color of it, to the 
price of their wares. But it is not true that they can always 
realize the whole of this enhanced price. Generally they 
can, sometimes they cannot. If the article be one of ne- 
cessity, or a luxury that has become equivalent to a neces- 
sity, and there be no other source of supply than the taxed 
one, then, as a rule, the tax falls wholly on the consumer, 
and is a matter of indifference to the producer or dealer. 
But the usual effect of an enhanced price is to lessen de- 
mand, and if the article is dispensable, or its consumption 
can be lessened, or it can be obtained elsewhere, the market 
will be sluggish under the tax, and producers or dealers 
will be likely to tempt it by lowering prices, in other 
words, by sharing the tax with consumers, and paying 
that share out of profits. This is the principle. Producers 
and dealers would rather the tax were off. Consumers 
generally, but do not always, pay the whole of it. 

13. What is to be said about the DiPFUSioisr of Taxes ? 
David A. Wells, an admirable and indefatigable authority 
on all practical questions in Economics, though perhaps 
less skilled in scientific classification and generalizations, 
several years ago made somewhat prominent in public 
discussion the tendency of Taxes to diffuse themselves. 
Much more has been written about this than is actually 



572 PRINCIPLES OF POLITICAL ECONOMY. 

known about it. By Diffusion is meant that it does not 
make so much difference upon what or upon whom a tax 
is originally levied, because the tendency of things is to 
diffuse it, that is, to compel others to assist in paying the 
tax. The result of much personal reading and reflection 
on this point is the conclusion that taxes do not " diffuse 
themselves " nearly so much as has been sometimes sup- 
posed ; and that, at any rate, it is a good deal better to 
take the taxes from those who ought to pay them, than to 
lay them at random, and then to trust some unknown 
forces to make them afterwards just. It is certain that 
some unjust taxes cannot be diffused ; for example, the 
protective tariff-taxes paid by the farmers upon articles 
of necessary consumption. These taxes have no tendency 
to raise the price of the farmers' produce, for that is 
determined by the foreign market, to which large parts 
of the produce are exported. For such taxes the farmers 
cannot reimburse themselves. Taxes that affect no prices 
are the best of all ; taxes that affect prices the least are 
the next best ; and taxes that are designed to affect prices 
are the very worst. 

14. What are the bearings of the United States Con- 
stitution on the whole matter of Taxation in this coun- 
try ? We have now seen pretty fully, what the science of 
Economics has to say about the sources and modes and 
results of tax-laying : but we are bound to tell also, what 
the kindred but much less developed science of Politics, 
and particularly what the Constitution of the Fathers, has 
to say upon the same vitally important topics. 

(1) The first power granted by the People to Congress, 
which is simply their agent, in that Instrument from which 
each of the three great Departments of Government de- 
rives all its authority, is in these words, exactly copied 
from the original and official parchment in every par- 



TAXi-Koif. 573 

ticular : " The Congress shall have Power to lay and collect 
Taxes, Duties, Imposts and Excises, to pay the Debts and 
provide for the common Defence and general Welfare of the 
United States ; but all Duties, Imposts and Excises shall be 
uniform throughout the United States.''^ This grant of 
power, which stands first in order, is followed by seven- 
teen other express powers granted to Congress in the same 
eighth Section of the first Article. 

There never has been any diiference of opinion, and 
there cannot be under such completely explicit language 
as this, among competent Statesmen and Commentators, 
as to the exact meaning of this clause, namely, Congress 
is given power to lay taxes in order to get money, with 
which to pay the debts and provide for the common de- 
fence and general welfare of the United States. That was 
the opinion and purpose of every member of the Federal 
Convention, that framed the Constitution in the summer 
of 1787 ; of Alexander Hamilton, who was first called on 
as Secretary of the Treasury officially to interpret it ; of 
Daniel Webster, often called the " great expounder " of the 
Constitution ; of John Marshall, the great Chief Justice of 
the Supreme Court ; of Judge Story, the first copious and 
most distinguished commentator upon the Text ; of George 
Bancroft and George T. Curtis, the learned and elaborate 
historians of the Text ; and in short, of everybody else, 
who has earned any right in any way to have an opinion 
on any such matter of political interpretation. 

"Why, then, has there been from the first until now, a 
feeble flutter of butterfly wings around the clause, as if, 
somehow or other, it gave Congress by hook or by crook 
some power or other to do something else than to lay taxes 
in order to get money for the maintenance of the national 
Government? As if there lay concealed in the language 
somewhere a power to lay taxes for a purpose precisely 



674 PRINCIPLES OF POLITICAL ECONOMY. 

opposite to that expressed in the text, namely, nominal 
taxes designed to prohibit any money being gotten under 
them? And why did Hamilton himself, whose wings were 
those of an eagle, sweep low and hover uncertainly about 
these words, and so give color to the political historians of 
our time to say : " Once more laying hold of the " general 
welfare " clause of the Constitution^ Hamilton here argued^ 
under color of giving bounties to manufactures, as though 
Congress might take under its own management every thing 
which that body should pronounce to be for the general wel- 
fare, provided only it was susceptible of the application of 
money. Though he limited this central discretion to the 
application of money, and stated some restrictions rather 
vaguely, the insidious tenor of his report was to show that 
the Federal power of raising money teas plenary and indefi- 
nitely greats 

The true answer to these questions is a point of Gram- 
mar. The simple English infinitive, unlike the simple 
infinitive of any other language with which the writer is 
acquainted, often expresses purpose, as well as the action of 
the verb without limitation of person or number ; so that, 
it is perfectly good English to say, " To lay taxes to pay," 
when the only possible sense of it is, " To lay taxes in 
order to pay." Greek, Latin, and German would use here 
with the infinitive the particle expressing the purpose : 
the English language does not. It is not true to say, that 
ambiguity enters this clause, through the common and 
elegant use of the simple infinitive in English to express 
the purpose ; but it is true to say, that superficial confusion 
has entered here, and a mess of bad logic. What makes 
it absolutely certain, beyond the possibility of a contro- 
versy, that Congress can levy taxes only in order to get 
money by means of them, is, (a) that is the only English 
of the clause ; (b) the " debts " of the United States can 



TAXATION. 575 

only be paid in money ; and (c) if this be not the meaning 
of the clause, its meaning must then be plenary, and there 
would be no need or place for the remaining seventeen 
powers, " and all other powers vested by this Constitution 
in the Government of the United States or in any Depart- 
ment or Officer thereof " ; in other words, any other in- 
terpretation of the taxing clause than the plain one would 
destroy the Constitution root and branch ; for, if Congress 
have the general power " to pay the debts and provide for 
the common defence and general welfare of the United 
States," all other possible powers are included in this, 
and President and Court disappear, and all other clauses 
of the Text are a nullity. 

If the above course of reasoning be sound, and he would 
be a bold logician who should openly dispute it, then taxes 
laid for any other end than revenue are clearly unconstitu- 
tional. The Supreme Court has never passed upon this 
bald point, for it has never been mooted in this form ; but 
one would think, there can be little doubt how the judges 
would decide in any " case " directly involving the con- 
stitutional power of Congress to levy prohibitory tariff- 
taxes, whose avowed or clearly inferrible design it is, not 
to get money with which to pay the debts and so on, but 
to cut off the possibility of getting any money thereby. 
The general trend of the decisions of the Supreme Court 
has wisely been, to leave in their interpretations of the 
Text the widest margin of discretion to the Legislative 
branch as to the best means of raising revenue ; but when 
it comes to face the question of allowing as constitutional 
the best means of preventing revenue, — well, may we be 
there to see and hear ! 

(2) There are prohibitions on Congress in the Constitu- 
tion, as well as powers conferred, and among these this : 
" No tax or duty shall he laid on Articles exported from any 



676 PEDsrciPLES of political economy. 

Stated This is a part of the third great Compromise of 
the Constitution, and was a concession to the southern and 
planting States to make more palatable to them the power 
"to regulate commerce," that was expected to be used 
(and was used) in behalf of the northern and navigating 
States. But the concession lyas more nominal than real, 
as the southerners found out in time to their vexation. 
To prohibit taxes on exports, and to leave in full vigor the 
power to tax imports, though consonant with the then pre- 
vailing delusion of Mercantilism, is no boon to commerce 
in general ; because, any restriction on buying products is 
equally and instantly a restriction on selling products. 
Exemption from taxes on exports is a good thing in itself, 
but the only reason for selling exports is to take in profit- 
able pay the imports naturally offered against them ; and if 
these be restricted or prohibited, the restriction or prohi- 
bition applies instantaneously and inevitably to the would- 
be exports. A reasonable liberty of exporting is nothing, 
unless accompanied by a reasonable liberty of importing, 
because the imports pay for the exports and the exports 
buy the imports. 

The southern States rejoiced for a time in this exemp- 
tion-clause of the Constitution, for their rice and cotton 
and indigo found no obstacles in going out ; but the only 
motive in sending them out was to buy something with 
them to bring back ; and after the snare of Protectionism 
entangled the People in 1816, 1824, and specially in 1828, 
when the " Tariff of Abominations " was passed, the 
southern people saw oidy too distinctly, that taxes on 
imports which they wished to bring in were the same in 
effect as taxes on their own exports would have been. 
Mr. Calhoun and the others were effectually undeceived 
by the customary on-goings of commerce ; and as the 
northern statesmen uuMdsely and unpatriotically deter- 



TAXATION". 577 

mined to crowd this iron home in 1828, the party of the 
other part developed under great provocation the doctrines 
of Nullification and Secession, which have since caused a 
plenty of tears and bloodshed. One wrong ever begets 
other wrongs. The wretched Greed of one section of the 
country was own father to the wrongful Secession of the 
other section. 

The Farmers of this country have often been congratu- 
lated on their privilege under the constitution of export- 
ing their agricultural products without a tax. The con- 
gratulation is hollow. Of what use is it to go out free and 
come back manacled? The ultimate is always the return- 
service. The farmers are cheated. Their agricultural 
exports are falling off year by year solely in consequence 
of outrageous tariff-taxes on imports. In 1881, farmers' 
produce was exported to the amount of $730,394,943, and 
that was not one-half what it would have been under a 
simple and adequate Tariff for Revenues ; but in 1889, 
these exports only reached $532,141,490, a falling off of 
nearly $200,000,000. This decline was chiefly in meats 
and breadstuffs. No wonder the farmers have been com- 
plaining of terribly hard times of late years : no wonder 
they are organizing " Alliances " and other machinery for 
reaching a remedy : they must see clearly first where the 
disease lies : the truth is, they are tariff-taxed to death : 
their foes are they of their own household: Vermont, a 
purely agricultural State, is the only one in the Union, 
that has actually retrograded in property and population 
in the last census-decade : those excellent people have 
hugged the Tariff-delusion to their ruin; their senior Sen- 
ator, whose name is unpleasantly connected with the na- 
tional tax-laws of a generation, has never yet in the course 
of a long and reputable life gained a glimmer of the com- 
mercial truth, — if men ivill not buy they can not sell. 



678 PKINCIPLES OF POLITICAL ECONOMY. 

(3) The only otlier clause of the Constitution, which, as 
students of Taxation, we are bound to examine, is the fol- 
lowing: "iVo Capitation^ or other direct. Tax shall be laid, 
unless in Proportion to the Census or Enumeration herein 
hefore directed to he takenJ'' A capitation tax is a poll-tax, 
which may be easily " proportioned " to the Census. It is 
not clear, what is the meaning of the words "or other 
direct tax " ; the Supreme Court early struggled with that 
question, to this apparent result, that lands, as the only 
form of property that can be "proportioned" in their 
appraised value to population with any considerable degree 
of accuracy, are the only " other " subject of '" direct " 
Taxation. However this may be, it is of considerable con- 
sequence to note, that the term, "direct tax," as used in 
the Constitution, does not correspond in its meaning to the 
significance of the same term as emploj^ed in Economics. 
With us, a " direct tax " means one demanded from and 
paid by the person on whom it is ostensibly levied, and 
cannot be thrown off or forward on anybody else ; while 
an " indirect tax " is one which can be so thrown off or 
forward. 

Attention is called to the distinction here, in order to 
show that an Income-tax, while in the Economical sense it 
is a " direct tax," is not such in the sense of the Constitu- 
tion. Objections were urged against the late Income-tax 
in this country, that it was a " direct tax," and so, because 
it could not be proportioned to the population, was uncon- 
stitutional. The point is not well taken. It remains, and 
will remain, after the most searching scrutiny, that an 
universal Income-tax, all other taxes being abolished, is 
the form most consonant with the principles of Political 
Economy, and not at all repugnant to the Constitution of 
the United States. 

15. Finally, are there any hints and guides to thought 



TAXATION. 579 

and leofislation in the matter of Taxation throus^h an 
extremely brief summary of the HiSTOHY of Taxes ? So 
far as the Greeks are concerned, they showed a practical 
good sense in their laws of Property in general, and in their 
laws relating to Taxes in particular. The natural march 
of industry and commerce was not hindered by taxation: 
there was no forbidding the export of raw materials or 
specie ; no favoring of manufactures at the expense of agri- 
culture ; no hint of the future Mercantilism in any efforts 
to preserve an artificial balance of trade ; and no taxes on 
imports except for purposes of Revenue. These at Athens 
itself were usually 2% of the value of the goods, at the 
ports of her subject-allies 5%, and exceptional cases of 
higher rates than these were regarded as extortionate. 

The Romans also were sensible and moderate in their 
modes of Taxation. They laid taxes for the sake of getting 
money for the public treasury, and had no other end in 
view. They knew nothing of what has since become 
famous under the name of " Protectionism." Their taxes 
were both direct and indirect, but especially the latter. 
The chief direct tax was the land-tax, that is, a claim to 
the tenth part of the sheaves and of other field produce, 
such as grapes and olives ; and also pasture-money {scrip- 
tura) demanded of those who made use of the public 
pastures and woods. In Macedonia and the other larger 
Provinces, in lieu of the land-tax a fixed sum of money 
(trihutuni) was paid to Rome each year by each community 
in its own way. The grain-tenths and pasture-moneys 
were always farmed out to private contractors or companies 
on condition of their paying fixed quantities of grain or 
fixed sums of money. The chief indirect tax was customs- 
duties. There never was at any time a general tariff for 
the whole empire, but there were customs-districts, such as 
Italy, Sicily, proconsular Asia, the province of Narbo in 



580 PlUNCll'LES OF POLITICAL ECONOMY. 

(Jiaul, and others, each with a sort of tariff of its own, and 
some with special immunities. Goods imported by sea into 
Italy, for example, not for the personal use of the importer, 
were subject to a tax, which seems to have been mainly a 
tax on luxuries, since pepper, cinnamon, myrrh, ginger, 
perfumes, ivory and diamonds, are among the dutiable 
goods mentioned in one of these tariffs. Sicily had a tariff- 
tax quite distinct from this, since one-twentieth of the 
value of the goods (5%) was levied on the frontier on all 
imports and exports; and a similar tax of one-fortieth was 
laid by the Sempronian law on the province of Asia. 
These imposts, too, were leased to conti-actors, which gave, 
of course, some chance of fraud and wrong. There were 
other temporary taxes, like those, for instance, which 
Augustus laid of 5% on legacies and inheritances, and of 
1% on articles publicly exposed for sale. 

Green's History of England (I., 322 et seq.') gives an 
outline of the taxes there from the beginning of the mon- 
archy. As land was almost the only source of salable 
things in the early time, so it was almost the only thing on 
which taxes were levied. Danegeld andscutage and feudal 
aids fastened only on the land. " But a new principle of 
taxation was disclosed in the tithe levied for a Crusade at 
the close of Henry Second's reign. Land was no longer 
the only source of wealth. The growth of national pros- 
perity, of trade and commerce, was creating a mass of 
personal property which offered irresistible temptations to 
the Angevin financiers. No usage fettered the Crown in 
dealing with personal property, and its growth in value 
promised a growing revenue. Grants of from a seventh 
to a thirtieth of movables, household property, and stock 
were demanded. The right of the king to grant licenses 
to bring goods into or to trade within the realm, a right 
springing from the need of his protection, felt by the 



TAXATION. 



581 



strangers who came there for purposes of traffic, laid the 
foundation for our taxes on imports. Those on exports 
were only a part of the general system of taxing personal 
property. How tempting this source of revenue was prov- 
ing, we see from a provision of the Great Charter, which 
forbids the levy of more than the ancient customs on mer- 
chants entering or leaving the realm. Commerce was in 
fact growing with the growing wealth of the people." This 
passage shows, that, as a matter of fact, taxes have always 
hinged, and must hinge, on trade. 

A few facts in the most recent movements of national 
Taxation in the United States may fitly conclude this 
Chapter and this Volume. Since 1867, Wool and Woollens 
have been the ass, upon whose breaking back the most con- 
spicuous burdens have been piled ; and the " McKinley 
Bill" so-called, still pending at the present writing in the 
Senate, heaps up still higher the groaning loads. The fol- 
lowing table shows how futile is the attempt to keep out 
wools and woollens from such a country as ours, even by the 
most exaggerated barriers : — 



Imports of Wools and Woollens. 
(Calendar Tears.) 



Years. 


Wools. 


Woollens. 


1886 


$17,403,099 
15,645,020 
14,542,244 
18,696,277 

(fiscal year) 


143,995,641 
45,065,986 
49,984,298 
54,080,159 
56,582,000 


1887 


1888 


1889 


1890 





Roger Q. Mills of Texas stated from his place in the 
House of Representatives in 1888, that the United States 
grows but about 265,000,000 lbs. of wool yearly, while it 



582 PRINCIPLES OF POLITICAL ECONOMY. 

takes about 600,000,000 lbs. to clothe our own people. 
Why should more than half the wool needed to clothe the 
people be taxed in such a way as to double (in general) 
the cost of the people's clothing ? And why should Benjamin 
Harrison, now President of the United States, have said 
in that same year, in view of these elsewhere unheard-of 
taxes, and in view of the average climate of his country, 
that somehow it seemed to him that cheap clothing implied 
a cheap man ? In view of tlie enormous natural demand 
for woollens, in order to keep comfortable day and night 
64,000,000 of inhabitants, is it not strange, and must there 
not be artificial causes for it in the kind and mode of 
national Taxation, that the United States has but 16 sheep 
to the square mile, while Germany has 92, France 111, and 
Great Britain 339 ? 

Senator John Sherman stated in his place in August, 1888, 
and again in substance Sept. 2, 1890, that a line of custom- 
houses on our joint-frontier with Canada was " the height 
of nonsense^ and almost a crime against civilization.'''' Well 
might he say this in view of what his colleague, Allison of 
Iowa, has recently said, namely, that the Dominion bought 
in 1880 of the United States 8% of its brass goods, 86% 
of its copper manufactures, 94% of its cordage, 88% of its 
gingham, 65% of its glasswares, 99% of its rubber goods, 
94% of its printing ink, 92% of wooden wares, 91% of tin- 
ware, 90% of wall-paper, 72% of paper wares, 98% of 
ploughs, 97% of engines, 99% of oe wing-machines, and 
90% of miscellaneous machinery. 

The imports and exports of the United States for the 
last two fiscal years are as follows : — 



TAXATION. 



583 





1889. 


1890. 


Imports, free 


$256,487,078 
488,644,574 
745,131,652 
742,401,375 
28,963,073 
96,641,533 
774,094,725 
839,042,908 


$265,588,499 
523,633,729 
789,222,228 
857,824,834 
33,976,326 
52,148,420 
823,198,554 
909,973,254 


Imports, dutiable 


Total 

Exports 


Gold and Silverl-J-^'JJ-;;:: 
Total Imports 


Total Exports 





There are two or three noticeable points from this table. 
First, the large relative increase of free imports over those 
of former years. Free articles in 1867 were less than 5% 
of the whole; in 1882, 30%; and in 1890, 33.9%. The 
Free List, so-called, has indeed been enlarged in the inter- 
val, but free goods tend naturally to swell over the taxed 
goods, so that in 1890 the free were almost exactly one- 
half of the taxed. Second, of the large total of merchan- 
dise exports, it is to be sorrowfully noted, that more than 
82% of the whole is made up of the products of agricul- 
ture and forests and mines (not gold and silver) ; while 
manufactures compose only 17.8%. What ails our manu- 
factures, that we cannot sell them abroad? We have 
been for 30 years under a vaunted scheme warranted to 
develop manufactures, — expressly designed and recom- 
mended to make them cheap and good, — under an elabo- 
rate and artificial scheme that makes everything bend, 
even the backs of the toiling millions, to foster and propel 
manufactures ! But we do not succeed in selling much of 
them abroad, except some fractions of them to Canada. 
The ratio of them to the total of exports of merchandise 
seems to be growing less: in 1889, 18.9% ; in 1890, 17.8%. 

The simple truth is, that we are able to sell abroad even 
this beggarly proportion of manufactures to the total 
exports of merchandise, only in consequence of a shrewd 
device working within the Grand Device, namely, the so- 



584 PKINC11*L.ES OK POLITICAL ECONOMY. 

called " I^'rec List." Some of IIk; little wheels within the 
big wheel revolvi; i'i4)i(lly. iMiiiiiifaeturers do not like to 
pay protectionist tariff-taxes themneive8 any better than 
other peoi)l(i like to ])ay them. They have by their own 
open confession in ovei't act preciscsly the same oj)inion of 
their deadening inniiciicc!, that otlier [)C()[)ki have;. 11", 
however, they can csca])c such tax(!s on the things tliey 
have to buy, esj)e(Mally tluiir raw material, and keep thcnn 
on their own liiiishctl goods offercid for sale in a monopoly 
market, they would be hapj)y. IIcMice, the Free List. 
Hear Senator Dawes before the Paper-makers' Convention 
at Saratoga in 1887 : " There is one other feature of tariff 
revision much diHcuKsed at the present time which must not 
escape our attention, and that is free raw material. No 
industrial policy ivill promote the hir/hest prosperity of l>oth 
hihor and capital in this country, which fails to lay down 
the rau) material at the door of the manufactory at the lowest 
possihlc cost. Tn any new revision of the tariff this I'ule of 
preference for our own raw material must he adhered to hy 
those who do not propose to yive up the American for the 
indijjercnt policy in leyislatiny hctween oun^elves and for- 
eigners. It will UK FOUND, IIOWICVKK, TO ADD VEllY 
FEW ItAW MATERIALS TO THE FKEE LLST, FOR THE llEVLS- 
lONS OF 1874 AND 188-J HAVE ALKEADV INIADE FKEE ALL 
SIKJH NON-COMPETING HAW MATIOIMALS AS AT THE TIME 
OF THE PASSAfJE OF THOSE ACTS WERE ENTERINO TO ANY 
CONSH)ERABLE EXTENT INTO THE CONSUMI'TLON OR PllO- 
DUCTION OF THE COUNTRY." 

Till now, we have been dealing in facts, and figures, and 
in careful generalizations after the inductive manner: let 
us, at the very last, indulge; in a freak of fancy. Suppose 
for a moment, that all taxes of v.wvy name could be 
abolished instantaneously, and the (iovernnunits, like the 
Israelites, live on manna for forty years. What harm 



TAXATION. 585 

would ensue ? What industry would decline ? Who 
would be impoverished ? What stimulus to work and 
save and grow rich would be weakened thereby ? Would 
not wages, and profits, and rents, all be lifted thereby, with 
no damage to anybody? A child can see that Taxes from 
their very nature are a burden, are a subtraction from 
income, are a minus and not a plus. Who, then, except 
from sinister motives, can imagine and represent, that 
Taxes are a good in themselves, a positive blessing, a spur 
to the progress of Society ? 

Taxes of some sort there must be for the maintenance 
of Governments, which are established for the good of 
all. Why, then, should not the Taxes be just as few, just 
as simple, just as comprehensible, just as universal and 
equitable, as is consonant with the single end of their exist- 
ence at all ? 



Perry's Political Economv. 

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INDEX. 



Abraham, 9, 384. 

Abstinence, 93, 191, 338, 445. 

Abyssinia, 386. 

Activities of men, 1. 

Actors, 4. 

Act of Parliament, 127. 

Act of 1624, 135. 

Adams's inauguration suit, 510. 

Administration, 358. 

Ad valorem rates of tariff tax, 489, 558. 

Advantages of credit, 271. 

Advantages of discount, 302. 

African macoute, 388. 

" African, the," 158. 

Agent of the mill, 4. 

Age of iron, 95. 

Ages of stone, 95. 

Agreeableness of rendering, 218. 

Agriculture, 149, 538. 

Alison of Iowa, 583. 

Alloy, 416. 

America, 3, 

American capital, 166. 

Ames, Fisher, 538. 

Amsterdam, 165, 311, 421. 

Analysis, 15. 

Ancient Romans, 2. 

Annual earnings, 543. 

Apprenticeship, 186, 203. 

Arbitration, 266. 

Aristophanes, 420. 

Aristotle, 47, 98, 158, 248, 381, 402. 

Aristotle's Logic, 63. 

Arkwright, Richard, 109. 

Arlington Mills, 516. 

Artisans of every name, 2. 



Ascertainment, 15, 246. 

Asia, 19. 

Asia Minor, 333. 

Asia, pro-consular, 579. 

Association, 99. 

Assyria and Babylonia, 330. 

Astor, J. J., 180. 

Astronomy, 63. 

Auction, 57. 

Augustus Cfesar, 392, 580. 

Australia, 252, 399. 

Axe, 90. 

Axioms, 69. 

B. 

Babylonian tablets, 332. 

Bacon, Lord, 63, 64. 

Bailee, 278. 

" Balance of trade," 312, 407, 452. 

Bales of cotton, 345. 

Ball, John, 228. 

Balloon of promise, 343. 

Bancroft, historian, 512, 573. 

Bangor, 454. 

Bank bills, 286. 

Bank defined, 291. 

Bank deposits, 291. 

Bank discount, 299. 

Bank messengers, 5. 

Banker defined, 6. 

" Bankers' bills," 315. 

Bank of Amsterdam, 280. 

Bank of England, 82, 287, 292, 350, 

396, 448. 
Bank of Massachusetts, 288. 
Bank of New York, 288. 
"Bank of North America," 288. 

587 



588 



INDEX. 



Bank of Scotland, 325. 

Banks of Newfoundland, 180. 

Barter, 304. 

Bascom, John, 71. 

Bastiat, 47. 

Beauty of gold and silver coins, 413. 

Beck, Senator, 491. 

Benevolence and impertinence in 

trade, 23<). 
Bentham, Jeremy, 252, 448. 
Benton, Thomas H., 494. 
Berkshire Co., Mass., 2(J0, 533. 
Berlin, 3. 

Berlin Geographical Society, 27. 
Bernhardt, 211. 
Bessemer Steel Co., 487, 491. 
Best money, 395. 
Best tenure of lauds, 155. 
Betterments on land, 173. 
Bill-discounters, 300. 
Bill of exchange, 278, 300, 303. 
Bill of lading, 378. 
■' Bills of credit," 435. 
Bimetallism, 415. 
Bismarck, 210. 
" Black Death," 227. 
Blacksmith's capacity, 118. 
Blades of the shears, 249. 
Blaine, Secretary, 508. 
" Blanket " mortgage, 284. 
Blunders in economics, 75. 
"Body," 78. 
Bombay spinner, 201. 
Bonnieres quarry, l(i4. 
" Book of Trades," 114. 
Borrow, 277. 

Boston Commercial Bulletin, 563. 
Boston Custom House, 5(54. 
Botany, 03. 

Bottom-principle in taxes, 507. 
Bounty of God, 43. 
Bradford, Governor, 391. 
Bradley, Mr. Justice, 358. 
Breadth of contracts, 241. 
Bright, John, 199. 
British colonies, 313. 
British Isles, 84. 



British Provinces, 527. 
British Revenue Tariff, 485. 
British statesman, 153. 
Brokers' board, 302. 
Broker's office, G. 
Bronson, 434, 436. 
Brotherhoods, 226. 
Buchanan, James, 447. 
Bullets as money, 392. 
Bullion theory, 403, 451, 453. 
Bureau of Statistics, 204. 
Burman Empire, 386. 
Buying, 14. 
Buying and selling, 4, 15, 236. 

C. 

Cakes of tea, 386. 

Calhoun, Senator, 497, 499. 

Calicoes, 106. 

Canada, 179. 

Capital, 92, 96, 246. 

Capital defined, 93. 

Capital wears out, 171. 

Capitalists as a (;lass, 233. 

Capitalists of Boston, 4. 

Captains of industry, 196, 244. 

Care of niouey, .378. 

Carey, H. C, 103. 

Carpenter's square, 38. 

Carthage, 21, 84. 

Carthaginians, 386. 

Cartwright, Edmund, 111. 

Cases and classes, 68. 

" Cash accounts," 333. 

Cash credits, 324, 327. 

Cattle, 80. 

Cattle as money, 383. 

Causes of labor troubles, 238. 

Cavour, 210. 

Cecil, Robert, 120. 

Cedars, 2.3, 40. 

Census, 75. 

Central America, 27. 

Chadwick, Sir Edwin, 197, 200, 

Chaldean tablets, 331. 

Chalmers, Thomas, 137, 215. 

Chase, Chief Justice, 356, 357. 



INDEX. 



589 



Chatham, 210. 

Chattels, 93. 

Check-Bank, 321, 329. 

Checks on market rate, 56. 

Chemistry, 63. 

Cheques, 303, 317. 

Chevalier, 399. 

Chicago, 278, 477, 501. 

Chicago, fire in, 500. 

China, 19, 387. 

Chinese-wall policy, 474. 

Christianity, 22, 30. 

Christians, 10. 

Church relations, 241. 

Cicero, 97, 189, 248, 333, 403. 

Circular credits, 327. 

" Circular notes," 328. 

Circulating capital defined, 99. 

Civil Law of Rome, 206. 

Civil war, 353. 

Civil wars, 260. 

Civilization, 10, 89, 252, 366. 

Claims of conscience, 243. 

Classes of facts, 66. 

Classes of salable things, 7. 

Classes of valuable things, 5, 62. 

" Clearing house," 318, 321. 

Cleon, 421. 

Clergyman, 4. 

Clerks at the clearing, 320. 

Clifford, Mr. Justice, 357. 

Clog of economy, 33. 

" Cloth-workers' guild," 258. 

Coal, 497, 527. 

Cobden, Richard, 202. 

Codification, 206. 

Coffee and tea, 488. 

Cog-wheel railway, 1. 

Cohoes, 3. 

Coin, 429. 

Coined money of two kinds, 426. 

Coke, Lord, 89. 

Colbert, 404. 

Colonies of New England, 249. 

Columbus, 26. 

Commerce, 17, 402. 

Commercial credits, 49, 271. 



Commercial crises, 347. 
Commercial treaty of 1860, 29. 
Commodatum, 276, 340. 
Commodities, 2, 8, 20. 
Commodities defined, 80. 
Common law, 9, 88, 130, 205. 
"Company," 4. 

Company of the Indies, 438. 
"Compete," 464. 
Competition, 44, 121, 175. 
" Compromise Silver Bill," 475. 
Conditions of production, 99. 
Conditions of a science, 67. 
Conditions of trade, 15. 
Congress, 256, 288, 450. 
Connecticut, 100, 435. 
Conrad, John, 183. 
" Consolidated annuities," 274. 
Consols, 285. 

Constancy of employment, 220. 
Constitution of the United States, 133, 
178, 256, 358, 444, 474, 494, 572, 578. 
Constitutional law, 429. 
Continental Congress, 441. 
Cooley, Judge, 113. 
Co-operation, 268. 
Cooper Union, 222. 
Copper skewers, 385. 
Copyrights, 132. 
Corn laws, 58, 177, 217. 
Cost by railway mile run, 233. 
Cost of capital, 161, 165, 231. 
Cost of labor, 161, 231. 
Costs of carriage, 466. 
Costs of production, 159, 165, 397, 462. 
Cotton, 105. 
" Cotton City," 498. 
Cotton-gin, 100. 
Cottons and silks, 457. 
Coupons, 337. 
Court calendars, 254. 
Craft-box, 226. 
Craftsmen, 259. 
Credit, 372. 
Credit-claims, 6. 
Credit defined, 275. 
Credits, 8, 20, 58. 



590 



INDEX. 



Credits are capital, 338. 
Credits as taxable, 555. 
Crompton, Samuel, 110. 
Crossed cheques, 321. 
Current rate per centum, 105. 
Curtis, George T., 573. 
Custom, 224. 
Customs-taxes, 238, 474. 

D. 

Damascus, 8. 

Davis, Mr. Justice, 357. 

Dawes, Senator, 584. 

Dawn of history, 8. 

Dealer in services, (5. 

Debits at the bank, 6. 

Debt, its etymology, 275. 

Debts of the bank, 6. 

Decatur, Commodore, 482. 

Decennial Census, 519. 

Deduction, 62, ()9. 

Deductive sciences, 68. 

De Foe, 100. 

Demand acts upon value, 54. 

Demand and supply, 369. 

Demand defined, 52, 190. 

Denarius of Rome, 238, 385. 

Denomination-dollar, 388, .S90. 

Denominations of money, 372, 388. 

" Depositaries," 295. 

Deposit-banking, 293, 295, 297. 

Deposits, 296. 

Descartes, 68. 

Desires, 18, 64, 75, 138. 

Detroit, 491. 

Dey of Algiers, 482. 

Diffusion of taxes, 571. 

Diminishing profits, 228. 

Direct taxation, 553. 

Disadvantages of credit, 271, 343. 

Discount, 273. 

Discount defined, 301. 

Diversity of advantage, 25, 102, 117, 

131, 136, 262, 455, 458. 
Divine purpose, 26. 
Division of labor, 252, 257, 374. 
Dock laborers' strike, 313. 



Doctors' fees, 204. 
Doctrine of chances, 221. 
Doctrine of rent, 146. 
Dollar-bill, 427. 
"Dollars," 359. 
Domestic trade, 481. 
Dorsetshire laborer, 223. 
Drachm, 385. 
Drawee, 329. 
Drawer and bearer, 3.30. 
Duke of Orleans, 437. 
Durability of machinery, 168. 
Dutch capital, 16(). 
Dutcli East India Co., 280. 
Duty, 65. 

E. 

Easiness of learning, 219. 

East India Co., 114, 132. 

Economics, 31, 40, 64. 

Efficiency, 164. 

Efforts, 20, 59. 

Efforts and renderings, 32. 

Egypt, 9, 11, 24. 

Electricity and lightning, 70. 

Elliott, Ebenezer, 202. 

Ely, Professor, 251. 

"Empire State," 286. 

English recoinage, 422. 

English shilling, 317. 

Enlarging wages, 228. 

Ephron, 9, 384. 

Equation of international deraand,408 

Erie Canal, 286. 

Estimates, 22, 34, 39, 43, 60. 

Ethics, 64, 75. 

Etymology, 37. 

Etymology of "credit," 275. 

Euphrates country, 392. 

Euripides, 237. 

Europe, 9. 

Evarts, William M., 73. 

Exact sciences, 63, 65. 

" Exchange against," 314. 

" Exchange in favor," 315. 

Exchequer, 549, 568. 

Excise tax, 550. 



INDEX. 



591 



Exemption from taxes, 570. 

Experience and experiments, 65. 

Exports, 462. 

Exposure, 15. 

Ezekiel the propliet, 11, 83. 



Fallacies of protectionism, 503. 

Fallacy A, 504, 

Fallacy B, 508. 

Fallacy C, 516. 

Fallacy D, 520. 

Fallacy E, 524. 

Fallacy F, 529. 

Fallen market rate, 55. 

Fall of valuables, 49, 77. 

Falsities of protectionism, 535. 

" Farmer," 156. 

" Farmers' Alliances," 519. 

Farmers of United States, 577. 

Fawcett, Professor, 223. 

Federalists, the, 537. 

Fees of preachers, 206. 

Feigned cases, 65, 73. 

Feudalism, 248. 

Field, David Dudley, 206. 

Field, Mr. Justice, 357, 360. 

Field of investigation, 1. 

Field of the science, 540. 

Fire Insurance Co., 298. 

First difficulty in money, 361. 

" Five articles," 485. 

" Five-twenties," 285, 355. 

Fixed capital defined, 99. 

Fluency of gold and silver, 401, 407. 

Foreign bills of exchange, 306, 336. 

Foreign trade, 454, 462. 

Forms of credit, 271. 

France and England, 30. 

France and England in trade, 456. 

Franklin, Benjamin, 436, 538. 

Franklin's experiment, 60. 

Fraud, 16. 

Freak of fancy, 584. 

"Free breakfast table," 488. 

Free list, 583. 

Freedom, 99, 112. 



French "francs," 317. 
French government, 56. 
French lands, 156. 
Fruit dealer, 366. 
Funds, British, 284. 
Future time in credit, 273. 

Gambling, 347. 

Gangs of slaves, 100. 

Garibaldi, 211. 

General rise of prices, 348. 

Generalizations, 7, 67. 

Genesis, Book of, 143. 

Genus, 7. 

George, Henry, 142, 147, 151, 174. 

Georgia, 441. 

German Empire, 133. 

German " Mark," 317, 393, 413. 

Germans in Italy, 292. 

Gibbon, historian, 130. 

Gift, 16. 

Gifts of God, 86. 

Giving, 15. 

Gladstone, W. E., 151, 153, 172, 568. 

Glasgow, 137. 

Gloversville, 103. 

Glut of products, 140. 

Gold and silver divisible, 412. 

Gold and silver impressible, 412. 

Gold coins, 409. 

Gold eagle, 35. 

Gold eagle of United States, 389. 

Gold in greenbacks, 356. 

Goodhue of Massachusetts, 496. 

Gould, Jay, 204. 

Government a committee, 252, 481. 

Governments, 29, 267, 409. 

Gradual occupation of the earth, 154. 

Graduated income tax, 549, 550. 

Grains, 57, 87. 

Grand Device, 583. 

Grand Trunk Railway, 163. 

Grant, General, 358, 359, 408, 500. 

Gratuitous elements, 144. 

Gravitation, 363. 

Great Britain, 313. 



592 



INDEX. 



Greek cities, 384. 

Greek language, 298. 

Greeks, 73. 

Greeley, Horace, 129. 

Greenback dollar, 476. 

Greenbacks, 51, 280, 290, 409, 425, 432. 

Green Mountains, 519. 

Green's History, 9, 580. 

Greshani's Law, 421. 

Gresham, Sir Thomas, 421. 

Grier, Mr. Justice, 357. 

Ground of taxes, 542. 

Ground of trade, 25. 

Grounds of production, 116. 

Guild of Armorers, 226. 

"Guildhall," 226. 

Guilds of the Middle Ages, 258. 

H. 

Hamilton, Alexander, 288, .393, 415, 

511, 536, 573. 
"Handsome is that handsome does," 

250. 
Hargreaves, John, 106. 
Harrison, President, 582. 
Harrison's inaugural suit, 511. 
Hartley of Pennsylvania, 4il5. 
Health, 113. 
Hebron, 9, 81, 83. 
Henry II., 580. 
Hepburn vs. Griswold, 350. 
Herodotus, 386. 
Heyd, Dr. W., 27. 
Hildreth, historian, 512. 
Hills of .Tudah, 25. 
Hindoo rice, 393. 

Hired men lack motives, 255, 208. 
History of taxes, 579. 
Hoar, Judge E.R., 358. 
Holland, 280. 

'•Home Market Club," 516. 
Home Rule, 173. 
Homer, 81, 383. 
Honier, Sidney, 351. 
Hoosac River, 27. 
Hoosac Tunnel, 280. 
Horse-leech cry, 514. 



House-tax, 555, 570. 

Hudson's Bay Company, 114, 180. 

Hull, John, 434. 

Human efforts, 89. 

Human nature, 303. 

Hume, David, 121, 124, 326, 373. 

" Hymn to the Nativity," 149. 



Ideal dollar, 426. 

Idle capital, 191. 

Iliad, 81, 383. 

Illinois Central Railway, 232. 

Impeachments, 253. 

Imports, 472. 

Improvements in machinery, 465. 

Income bonds, 284. 

Income tax, 547, 549, 578. 

Indented servants, 249. 

India, 26. 

Indirect taxation, 553, 570. 

Individuals vs. Government, 253. 

Indorsements, 304. 

Induction, 62, 397. 

" Infant industries," 514. 

Infinite Mind at work, 363. 

" In God we Trust," 413. 

Inland bills of exchange, 306, 330. 

Inquiry, 78. 

Internal taxes, 500. 

International demand, 400. 

"International Copyright," 213. 

International exchange, 330. 

Introspection, 05, 67, 71, 77. 

Invention, 99, 104. 

Invention of money, 366. 

Ireland, 3S0. 

Irish banks, 288. 

Irish Land Hill, 152. 

Irish leases, 173. 

Iron Mountain, 526. 

Iron in Tennessee Valley, 565. 

Irving, Washington, 180. 

Israelites, 584. 

Issuer and bearer, 255, 427. 

Italy, 150. 



INDEX. 



593 



J. 

Jack-knife, 94. 

Jacob, 9. 

Jacobites, 292, 422, 431. 

Jamaica rum, 496. 

Jamestown, Va., 163. 

Jay, John, 537 

" Jealousy of Trade," 121. 

Jefferson, Thomas, 415, 424, 442. 

Jerusalem, 12, 24 

Jevons, Professor, 317, 381, 399. 

Jews, 9, 10, 21, 24, 240, 333, 444. 

Job, the Book of, 83, 397. 

Jonson, Ben, 88. 

Joppa, 22, 23. 

Judges, 4. 

K 

Kay, father and son, 106 
Kentucky, 491. 

Key to unlock difficulties, 364, 
Kinds of tariffs, two, 483. 
Kinds of utility, 44. 
King Hiram, 11, 16, 364. 
King Philip's victories, 392. 
King Solomon, 11, 16, 364, 
Kinkiness, 105 
"Kmt-goods Bill," 488. 
Knox, Comptroller, 433. 
Knox vs. Lee, 359. 
Kountze Brothers, 328. 



Labor, 182 

" Labor and Capital," 183. 

Labor defined, 90, 161, 184. 

Laborers, 4, 184, 186 

Laborers as a class, 233. 

Labor-troubles, 237. 

Laissez faire, 252. 

Land Bill, 1881. 172. 

Land parcels, 146, 170. 

Lands, 141 

Lapoiut, Alfred, 130. 

Latin Union, 414. 

Law, John, ;«1, 43G, 440 

Law of diminishing returns, 153, 172. 



Law of supply and demand, 52, 53. 

Laws of Moses, 443. 

Lawyers, 4. 

Layard, 330, 384. 

Legal rate of interest, 234- 

Legal ratio of gold and silver, 393. 

Legal restrictions, 225. 

Legal tender, 355, 356, 359. 

Legislators, 4, 270, 377, 451. 

Life Insurance Co., 298. 

Lightning-rod, 70. 

Limestone, 527. 

Limits of production, 136. 

Limits of value, 58. 

Lincoln, Abraham, 210. 

Lind, Jennie, 186. 

Liverpool, 455, 528. 

Loan, 276. 

Loaves of bread, 379. 

Locke and Newton, 423. 

Lockouts, 247, 266, 521. 

Locomotives, 233. 

Logic, 63. 

Logical fallacies, 534. 

London bills, 310. 

London bills of exchange, 469. 

London Bridge, 2, 3, 313. 

Lord Mayor of London, 265. 

Losses from depreciated money, 478. 

Louisiana, 438. 

Lowell, 3. 

Lowell and Jackson, 497 

Lowell mill, 7. 

Lowell on the Merrimack. 498. 

Lowering rates of interest, 234. 

Lowndes, Congressman, 498. 

Low taxes on few things, 568. 

Lucretius, 95. 

M. 
Macaulay, 123, 422. 
McCulloch, Hugh, 359. 
Macedonia, 579. 
Machinery, 197, 200. 
McKinley, 508, 516, 563,581. 
Macleod, Henry Dunning, 47, 278, 292, 
382, 383. 



594 



INDEX. 



Machpelah, 82, 3()5. 

Madison, James, 494, 538. 

Magellan, 26. 

Magna Charta, 444, 581. 

Major Premise, 03 

Malthus, T. R., 215. 

Manager at the Clearing, 5, 320 

Mania, IG. 

Market defined, 137. 

Market for products, 54. 

Market value, 54. 

Markets, 195. 

Marshall, Mr. Justice, 358, 573. 

Mason's trowel, 38, 98. 

Massachusetts, 286. 

Material commodities, 49. 

Maximum value, 01, 

Mechanics, 42. 

Mediterranean, 23. 

Mercantile sagacity, 140. 

Mercantile system, 115, 312. 

Mercantile Theory, 403, 452. 

Mercantilism, 576. 

Merchant defined, 6. 

Merchants as a class, 9. 

Messengers at the Clearing, 320. 

Metaphysics, 64, 75, 242. 

Methods and motives in foreign trade, 

481. 
Methods of mining, 398. 
Metric system, 419. 
Metropolitan Museum, 332. 
Mexican exports, 479. 
Mexican imports, 479. 
Mexicans, 105. 
Mill, John Stuart, 32, 63. 
Miller, Mr. Justice, 47, 357. 
Mills, Roger Q., 581. 
Milton, 1.50. 
" Rlind-cure," 263 
Mint of Amsterdam, 422. 
Mississippi Valley, 519. 
Mobility of laborers, 221. 
Molasses, 496. 
Molasses tax, 538. 
Mommsen, 238. 
Monetary Conference at Paris, 73, 74. 



Monetary " par," 471. 

Money, 77, 361, 367. 

Money a measure, 380, 415. 

Money a " medium," 370. 

Money a tool, 377. 

Money, current, 51. 

Money defined, 380. 

Money divisible, 374. 

Money is capital, 374. 

Monopoly, 88, 121. 

Montesquieu, 388. 

Moody's "power-loom," 497. 

Moore, Sir Thomas, 536. 

Moors from Africa, 481. 

Moral sciences, 63. 

Morals, 113, 248. 

Morrill, Senator, 518. 

" Morrill Tariff," 521, 533. 

Morris, Gouverneur, 539. 

Morris, Robert, 415. 

Moses, 11. 

Motives of Protectionists, 493. 

Motives to trade, 77. 

Mountain view, 1. 

Mountains of Israel, 25. 

Mount Lebanon, 23, 364. 

Mozart, 211. 

Munn, Dr., 204. 

Murillo, 56. 

Muscular effort, 189. 

Musicians, 4. 

iMutuum, 276. 

Myers, P. V. N., 332. 

N. 
Names on notes, 301. 
Napoleon, the First, 134, 570 
Narbo in Gaul, 579. 
National Bank, 289. 
National Banks of United States 

428. 
National Debt, 351. 
National Labor Commissioner, 528 
Nationalism, 251, 2.56. 
Nature, 102. 
Nature of Credit, 271. 
Natural agents, 85, 86. 



INDEX. 



595 



" Natural monopolies," 136. 

Nebuchadnezzar, 332. 

Nelson, Mr. Justice, 357. 

Nevada mines, 411. 

New England, 145. 

New Hampshire, 36, 441. 

New Jersey, 502. 

New Orleans, 438, 454. 

New Testament, 12. 

New York, l(i5, 477. 

New York Central Railway Co., 491. 

New York Clearing-House, 5, 7, 

319. 
" New York Public," 350. 
Nickel pieces, 384. 
Non-capital, 97. 
North Carolina, 92. 
Nottinghamshire, 163. 
Novgorod, in Russia, 386. 
Nullification, 577. 

O. 

Objective and subjective, 31. 

Objective realities, 76. 

Obligation in credit, 275. 

Ocean freights, 474. 

O'Connell, Daniel, 177. 

Ohio sheep, 530. 

" Oil Trust," 179. 

Oklahoma, 221 

Old Testament, 11. 

Open ports of Great Britain, 474. 

Operatives, 4. 

Opinions on Protectionism, 535. 

Orders to pay, 328. 

O'Reilly's poem, 208. 

Oresme, Nicole, 98. 

Origin of capital, 95, 

Oscillations of demand, 408. 

" Ought," 65. 

Ounce of silver, 36. 

Our Lord, 12. 

Outlying eases, 142. 

Overseers of the mill. 4. 

Owners, 38. 

Oxford University, 340. 

Oxus River, 27. 



Pacific States, 418. 

Paganini, 187. 

Palermo, 455. 

Palfrey, historian, 512. 

Paper-makers, 197. 

Paper-makers' convention, 584. 

Paper money, 427, 429. 

Par of Exchange, 307, 316. 

Par of foreign exchange, 468. 

Paradise Lost, 88. 

Parcels in the Clearing, 6. 

Paris, 3, 57. 

Paris bills of exchange, 470. 

Parliament, 284. 

Past time in commodities, 274. 

Patent rights, 132. 

Paul, Lewis, 109. 

Pauper labor of Europe, 528. 

Payer and payee, 329. 

Peace, 29. 

Peas and potatoes, 272. 

Peasant proprietor, 157- 

Peculiarities of Credit, 271. 

Pecunia, 81, 384. 

Pence and pound, 389. 

Pennsylvania, 436. 490. 

Personal services, 181. 

Personal slavei-y, 80. 

Persons in credit, 275. 

Petals of Howers, 70. 

Pheidon, King of Argos, 384. 

Philip le Bel, 404. 

Philpott, editor, 521. 

Phoenicians, 21 

Physical sciences, 32, 63, 64, 71. 

Physicians, 4. 

" Physiocrats," 141. 

Physiology, 216. 

Pierre and Company of Paris, 307. 

Piers Ploughman, 228. 

Pig-iron production, 560. 

Pilgrims, 391. 

Pillars of Hercules, 84. 

Pine-tree shillings, 392. 

Plato, 248. 

Pliny, 384. 



596 



INDEX. 



"Political Economy," 15, 174. 
Polo, the traveller, o87. 
•' Pool," the, 2. 

Poor Richard's Almanack, 158, 243. 
Poor's Railroad Manual, 229. 
Popular remedies tor low wages, 251. 
Portability of money, 411. 
Porter, Dr. Samuel, 28. 
Porters, 2. 

Portfolio of governments, 254. 
Post hoc errjo propter hoc, 534. 
Post Offices, 25(5. 
Potosi, silver of, 398. 
Pottery wares, 502. 
Pounds sterling, 310. 
" Power," 91. 
" Power-loom," 111. 
Preamble of the Constitution, 256. 
Present time in services, 274. 
President Jackson, 289. 
Press and Pulpit, 244. 
Price, 50. 

Price, Bouamy, 338, 382. 
" Prices current," 50. 
Prices of services, 375. 
Prices under taxation, 549. 
Principle of taxes, 546. 
Privy Council, 350. 
Probabilities, 347. 
Probability of success, 220. 
Procidius, 451. 
Production defined, 84. 
Products in market, 54. 
Profitable exchanges, 473. 
Profits the leavings of wages, 235. 
Progress of civilization, 10. 
Promise to pay, 279. 
Promissory notes, 300. 
Property, 101, 275, 545. 
" Property is theft," 149. 
Prophets, 94. 
Proportion of taxes, 544. 
" Protectionism," 309, 453, 493. 
Protectionism is prohibition, 486. 
Proverbs, 12. 

Providential elements in Economics, 
362. 



Prudhon, 148. 
Prussians, 549. 
Public opinion, 451. 
"Pulpit or Platform," 22. 

Q. 

Quality of gold uniform, 411. 

Quantity of metals, 399. 

Queen Elizabeth, 123. 

Questions of taxes, 541. 

" Quick sales and small profits," 344 

Quittance, 354. 

R. 

Randolph, John, 598. 

Rapidity of circulation, 372, 409. 

Rate of interest m Holland, 234 

Rate of taxes, 556. 

Kates of discount, 316. 

Ratio of gold and silver, 74. 

Raw materials, 526. 

Redemption of greenbacks, 291. 

licligion higher than morals, 263. 

Remedies for labor troubles, 238. 

Renderings, 26, 59, 76, 78. 

Rent, 160, 169. 

Rent defined, 170. 

Republic of Mexico, 478. 

Republic of Venice, 291. 

Requisites of pi-oduction, 84. 

Return services, 138. 

Revenue, 113. 

Revenue rights, 134. 

Ricardo, David, 146, 153, 169, 176. 

Right and wrong, 65. 

Rise in market rate, 55, 77. 

Rise of prices, 408 

Rise of valuables, 49 

" River and Harbor Bill," 488. 

Roach, John, 516. 

Robinson Crusoe, 100. 

"Rogues' Island," 441. 

Roman coins, 385. 

Roman Law, 277. 

Roman mercantile transactions, 238. 

Roman taxes, 579. 

Romans, 313, 402, 579. 



INDEX. 



597 



Royal Bank of France, 438. 
Royal library at Nineveh, 384. 
Ruggles, S. B., 74, 418. 
Rupee, 386. 
Russia, 150. 

S. 
Sabiyuts and Cassias, 451. 
Salary-class, 184. 
Salt, 178. 

San Francisco, 455. 
Sandal-wood, 23. 
Sardanapalus, 331. 
Satisfactions, 28, 75, 115. 
Savannah, 527. 
Savings banks, 270, 334. 
Saxon ancestors, 93. 
Say, J. B., 137. 

Scandinavian " crown," 317, 393. 
" Scarcity " of money, 440. 
Schquler, James, 511. 
Science as prophetic, 450. 
Science defined, 62. 
Science of buying and selling, 61. 
Science of value, 42. 
Scotch banking, 325. 
Scotch banks, 288. 
Scotland, 437. 
Scott, W.L.,265. 
Screw of Discount, 316. 
Scriptures, 9, 14. 
Scudder, M. L., 478. 
Secession, 577. 

Second difficulty in money, 362. 
Secretary of the Treasury, 296. 
Sempronian law, 580. 
Services, 7. 
Servius TuUius, 384. 
" Seven-thirties," 285. 
Shakspeare, 88, 98, 211. 
Shears, 91. 
Sliekels, 9. 

Sherman, Senator, 48, 490, 582. 
Shoddy, 130. 

"Shoemakers' Guild," 258. 
Shut-downs, 521. 
Shuttle, 91. 



Shylock, 98. 

Sicily, 580. 

Silks and cottons, 457. 

Silo, 154. 

Silver certificates, 279. 

" Silver Colony," 392, 442. 

Silver dollar, 418. 

Six kinds of exchanges, 8. 

Skilled laborers, 186. 

Smith, Adam, 114, 385, 398, 448, 536. 

Smith, Captain John, 163. 

Smith, Jonathan, 205. 

Smithson, James, 214. 

Social relations, 241. 

Society, 5, 18. 

Sociology, 242. 

Solomon, 18. 

Somers and Montague, 423. 

Sons of Heth, 9. 

Source of taxes, 543. 

Sources of income, three, 547. 

South Carolina, 435, 497. 

Spain, taxes in, 569. 

Spanish-Mexican dollar, 424. 

Spanish milled dollar, 415. 

Spaulding, E. G., 354. 

Speaker of Commons, 127. 

Specialties, 103. 

Species, 8. 

Specific rates of tariff-tax, 489. 

Specific taxes, 558. 

Speculation, 476. 

Speculation proper, 346. 

SpencQr, Herbert, 341. 

Spinning, 106. 

Spinning-Jenny, 108. 

" Springfield Republican," 265. 

St. Louis, 114. 

St. Petersburg, 455. 

St. Timothy, 242. 

Standard of comparison, 377. 

Stanford, Senator, 439. 

" Star Route Frauds," 256. 

State banks, 288. 

States and nation, 69. 

Statistics, 230. 

Statute law, 9. 



598 



INDEX. 



Stealing, 15. 

Steel beams, rtM. 

Steel rails, 4H7, 4'.;0. 

Sterliiij; cxcliaiif^e, 473. 

Steplieiisoii, Robert. 129. 

Stock, 2.S4. 

Stock Exchange, 347. 

Stockliolm, 455. 

Storrs, Dan, 'SO'i. 

Story, Mr. Justice, 573. 

" Straddles," .'547. 

Straits of Gibraltar, 481. 

Strikes, 247, 2t;i, 521. 

Strong, Mr. Justice, 359. 

"Sul)due," 144. 

Sub-forms of capital, 99. 

Subject of money clear, 'Mil 

Subject of Political Economy, 1. 

Subjective elements, 39. 

Subsidiary coins, 394, 418, 425, 43;'>, 

Sub-treasury of United States, 319. 

Sugar and molasses, as taxed, 5()7. 

"Suppliants" of Euripides, 237. 

Supply and demand, 3G, 445. 

Supply defined, 53. 

Supply of laborers, 219. 

Supreme ('ourt, 575. 

Supreme Court of United States, 

3(;0. 
Suspension of specie payment, 431. 
Swank, James JI., .5(i5. 
Swayne, Mr. Justice, 357. 
Syllogism, G9. 



Taconics, 27. 
Tailor's capacity, 119. 
Talents, Parable of, 13. 
Tariff, 128, 481. 
Tariff defined, 483. 
Tariff delusion, 577. 
Tariff for revenue, 483. 
Tariff Monopolies, 134. 
"Tariff of Al)ominations," 570. 
Tariff of United States, 487. 
Taussig, Professor, 128, 488. 
Taxation, 3()3, 540. 



Tea and coffee, 488, 492. 

Teachers, 4. 

Temple at Jerusalem, 3G4. 

Temple, Lord Richard, 199, 202, 544. 

"Thaler," 393. 

Theft, K;. 

'J'hing-dollar, 427. 

Third nation in trade, 459. 

Thompson, Professor, 516. 

Thoughts, G4. 

Ticket, a general, 371. 

Time of advance, IGG. 

Tobacco of Virginia, 309. 

Tobacco taxes, 571. 

'I'ools, 95. 

Trade, 10, 73. 

Trades-unions, 22G, 258. 

Treasurer of the mill, 4. 

Trebizond, 27. 

Tree-wool, 105. 

Troughton's inch, 390. 

Tru.st, 10. 

Trustee, 278. 

Tubal Cain, 95. 

Tunis and Tripoli, 482. 

Tyre, 11, 83. 

Tyrians, 19, 22. 

U. 

Ulpian, 277. 

" Ulster right," 224. 

Ultimate elements, 31. 

Union Bank of London, 328. 

Unique cases, 4(). 

United Kingdom, 171, 203, 393, 406. 

United States, 140, 165, 247, 288, 380, 

405, 415, 450. 
United States Bank, 288, 289, 293. 
United States Money, 310. 
United States Treasury, 279. 
Universal income tax, 5.5(). 
University, Johns Hopkins, 254. 
Unprofitable exchanges, 473. 
LTnseen elements, 31. 
Unvalued lands, 143. 
" Ur of the Chaldees," 384. 
Usury laws, 442, 448. 



INDEX. 



699 



Utility, 144, 161. 

Utility and Value, 43, 147. 



Vale of Sharon, 26. 

Valuable lands, 143. 

Valuables, 7, 49, 368, 378. 

Value, 32, 05. 

Value acts upon demand, 55. 

Value defined, 46. 

Value of cottons and silks, 459. 

Vasco da Gama, 27. 

Vermont, 577. 

Vermont wools, 530. 

Vice-President Clinton, 289. 

Virginia in 1755, 436. 

Vital principles of a protective tariff, 

three, 486. 
Vital principles of a revenue tariff, 

three, 483. 
Voluntary associations, 226. 

W. 

" Wages," 161, 184. 
Wages-portion, 192, 257. 
"Wages-question," 163. 
Wages, the leavings of profits, 235. 
Walker, Francis A.. 103, 185. 
Walker, J. H., 340. 
Walker's "Money," 382. 
" Walking-delegate," 265. 



Waltham, 497. 

Wampum, 386. 

War debt, 353. 

Washington, 210. 

Washington's inauguration suit, 510. 

Water from the spring, 60. 

Waterfall, 87. 

"Water-twist," 109. 

Ways and means, 355, 487. 

" Wealth," 32. 

"Wealth of Nations," 398, 536. 

Webster, Daniel, 88, 187, 573. 

Wells, David A., 571. 

West of Europe, 19. 

Whigs, 292. 

Whitman, William, 516. 

Whittier, 258, 500. 

Will, 64. 

William and Mary, reign of, 292, 392, 

423. 
Wiltshire laborer, 223. 
Wolfe, General, 207. 
Wool, 105. 

Wool and woollen industry, 563, 581. 
Wool and woollens tariff, 529, 533. 
Wool manufacturers, 516. 
Worn-out farms of New England, 155. 
Wright, C. D., 268, 528. 



Yard-stick, 378. 
York shilling, 424. 



Typography by J. S. Gushing & Co., Boston, 
Prcsswork by Berwick & Smith, Boston. 



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